Tim Hext: What to pay attention to in the RBA’s latest monetary policy statement

Here Pendal’s head of government bond strategies TIM HEXT points out what to pay attention to in the RBA’s latest monetary policy statement

• Why bonds, why now? Pendal’s income and fixed interest experts explain
• Browse Pendal’s fixed interest funds

WHEN the Reserve Bank releases its quarterly monetary policy statement I look for two things.

Firstly, what are the forecasts?

There’s usually new information there, though often the preceding monetary policy decision mentions them earlier.

The second thing I look for are the two blue breakout boxes usually featured in the statement.

“Box A” and “Box B” are typically special interest topics – importantly, topics of special interest to the RBA.

They offer an insight into what topics our central bankers are discussing and investigating internally.

Sometimes there are clues as to what may follow.

In the latest statement released on Friday, Box A contains a rather technical article titled The Bond-Overnight Index Swap Spread and Asset Scarcity in Government Bond Markets.

Box B’sarticle is Insights from Liaison, which summarises discussions with 230 Australian businesses, industry bodies, government agencies and community organisations between May and August.

The first would appear to be of interest to very few, outside of bond geeks like me.  

Clearly though, the RBA is looking at the pros and cons of quantitative tightening, which should be of interest to investors. More on this another time.

The business liaison box is significant. The RBA has often referred to this extensive program, but has only recently started sharing specific data.  

Box B reveals a growing view that businesses are seeing an easing in both demand and costs, consistent with an increasingly neutral RBA.

Of particular interest is the graph below:

This graph shows an easing of expectation for wage rises in the year ahead.

Perhaps this is not surprising as actual inflation falls to 4%.

But the most popular indicator of wages, the Wage Price Index, is not forecast to peak until the end of this year at slightly above 4%.

This liaison shows the RBA will likely stare down commentators who talk about higher wages meaning further rate hikes.

Overall, the RBA’s August monetary policy statement should be reassuring for Australian bond investors.

However, a recent US fiscal surge seems to be weighing on US bonds and therefore curbing gains here.

But let’s save that topic for next time.

Find out about

Pendal’s Income and Fixed Interest funds

Read more

About Tim Hext and Pendal’s Income & Fixed Interest boutique

Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.

Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

The team won Lonsec’s Active Fixed Income Fund of the Year award in 2021 and Zenith’s Australian Fixed Interest award in 2020.

Find out more about Pendal’s fixed interest strategies here

About Pendal

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.

In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.

Contact a Pendal key account manager