What’s Next After The Spot Bitcoin

Cryptocurrency

Summary:

Following the SEC approval of the spot Bitcoin ETF earlier this month, Bitcoin prices increased significantly.

Following the SEC approval of the spot Bitcoin ETF earlierthis month, Bitcoin prices increased significantly to $47,000,before dropping below $40,000. Even as Bitcoin pricesrecover, over one-third of consumers still hold the belief Bitcoin prices will fall bellow $20,000 by year-end.Over one-third believe that the price of Bitcoin will bebelow $20,000 by year-end.

Over one-third believe that the price of Bitcoin will bebelow $20,000 by year-end

Source: Deutsche Bank, dbDIG, People were surveyed from the 15th to the 19th ofJanuary. Note the question asked was “At the end of 2024, where do you think theprice of bitcoin will be? It will be…”.

Not only are consumers bearish about Bitcoin prices, butour dbDIG January survey also revealed more than half ofour respondents’ expressed concerns about a majorcryptocurrency experiencing a collapse within the nexttwo years.

Most people believe that another major crypto willdisappear/collapse by 2026

Source: Deutsche Bank, dbDIG. Note: People were surveyed from the 15th to the 19thof January. Note the question asked was “If a major cryptocurrency were to disappear/collapse, when do you think this would most likely happen?”.

Although consumers remain cautious, nearly $4bn infunds have flowed into the new ETFs, bringing the total trading volume to nearly $7bn. To date, Blackrock’s fundalone has received over $1.4bn in inflows. Fidelity’s fundhas received nearly $1.3bn. Much of this influx of fundsis coming from investors exiting the Grayscale fund.Grayscale previously dominated the market of regulatedBitcoin investing, but the arrival of cheaper ETF optionshas seen outflows total -$2.8bn.

The SEC’s approval of the ETF came with a warningfrom Chair Gary Gensler. He emphasised that “Bitcoin isprimarily a speculative, volatile asset that’s also used forillicit activity… investors should remain cautious.” OurdbDIG survey clearly indicates a lack of understandingof cryptocurrencies, as two-thirds of consumers possessminimal or nor understanding of these digital assets.

Following the successful start to the spot BitcoinETF, more ETFs are likely coming. A total of sevenspot Ethereum ETFs are pending, with the SEC’sfirst decision expected in mid-May. ProShares hasalso announced plans to launch five additional ETFs,including one that would provide twice the dailyexposure to a Bitcoin-tracking index.

The crypto world is gradually moving towards greaterinstitutionalisation as traditional financial players enterthe market. By expanding regulated crypto access,upcoming spot ETF approvals could drive furthermainstream adoption. Comprehensive regulation isalso upcoming, with the EU Markets in Crypto Assetsregulation coming into effect later this year. A clearerregulatory framework should drive help crypto matureinto a more established asset class.

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Devin

Economic

Forex

Australian Dollar encountered significant headwinds in today's Asian session, weighed down by the latest Australian Q4 CPI data. The lower than expected inflation confirmed that RBA would hold interest rate unchanged in the forthcoming meeting next week. The central bank could also be finally ready to indicate completion of the tightening cycle. Market speculation is intensifying around rate reductions in the second half of the year.

Compounding Australian Dollar's weakness, ongoing slump in stock markets across Hong Kong and China weighed heavily on the currency. Despite slight improvement in China's NBS PMIs, investor confidence remains subdued. The market continues to await more robust and concrete measures from the Chinese government to bolster market confidence, particularly in the wake of prolonged underperformance.

In contrast, Dollar is gaining slight ground against its major counterparts, as market's attention is riveted on the upcoming FOMC rate decision. The consensus is firmly set on Fed holding rates steady at 5.25-5.50%. In this context, the probability of any significant surprises appears minimal.

General sentiment suggests that March may be too premature for Fed to initiate a rate cut too. The most probable outcome is that Chair Jerome Powell will reiterate the commitment to data-driven decision-making, and counter any premature market speculations about imminent rate cuts. Because of that, any unexpected indications from Powell regarding a rate cut in March could trigger significant market volatility.

As of now, the probability reflected in Fed fund futures for a rate cut in March stands at around 45%, with a more pronounced likelihood of 87% for a cut in May. However, it's crucial to note that these probabilities are highly contingent on the upcoming ISM Manufacturing and Non-Farm Payroll data, which are anticipated later this week.

As for the week, New Zealand Dollar is currently the strongest one, as supported by hawkish comments by RBNZ Chief Economist yesterday. Yen is the second strongest, with today's BoJ summary of opinions affirming that a rate hike is on the radar, though not imminent. On the other hand, Euro is staying as the worst, as the lift from yesterday's GDP was weak and brief. Markets are looking to tomorrow's Eurozone CPI for the excuses to add to speculation of an April ECB cut. Sterling is the second weakest, followed by Aussie. Dollar, Swiss Franc, and Canadian are mixed.

Technically, as a follow up to yesterday's post, AUD/JPY's dip and breach of 96.89 is affirming the bearish case discussed. That is, rebound from 93.70, as the second leg of the pattern from 98.56, is possibly completed at 97.86 already, on bearish divergence condition in 4H MACD. Deeper fall is in favor as long as 55 4H EMA (now at 97.30) holds, to 95.82 support. Decisive break there will confirm this case and target 93.70 support again.

CPI Miss Drives Aussie Down, Dollar Sees Modest Rise Pre-FOMC_1

In Asia, Nikkei closed up 0.61%. Hong Kong HSI is down -1.53%. China Shanghai SSE is down -1.11%. Singapore Strait Times is up 0.18%. Japan 10-year JGB yield rose 0.0220 to 0.734. Overnight, DOW rose 0.35%. S&P 500 fell -0.06%. NASDAQ fell -0.76%. 10-year yield fell -0.032 to 4.059.

BoJ summary of opinions suggests rate hike within reach

The Summary of Opinions from BoJ's meeting on January 22-23 signaled the central bank's intensified focus on initiating its first rate hike since 2007 and moving away from its long-standing negative interest rate policy. The deliberations, however, stopped short of providing a clear timeline for these policy shifts.

A notable hawkish sentiment within BoJ pointed to the "growing possibility" of significant wage revisions in the upcoming spring, at "relatively higher levels" than in the past. This perspective is underpinned by the recognition of "improving trend" in both economic activities and price. Such developments suggest that the necessary conditions for revising monetary policy, including ending the negative interest rate regime, are increasingly "being met".

Concurrently, the impact of Noto Peninsula Earthquake on is a key factor under close observation. One opinion suggested that, after a thorough assessment of the earthquake's effects over "the next one or two months", BoJ is "highly likely to reach a point where it can normalize monetary policy".

On the other side of the spectrum, a more cautious stance was also expressed. While acknowledging that the probability of achieving the BoJ's 2 percent price stability target is becoming "more realistic", it was noted that certainty in reaching this goal is not yet fully established. However, this view also supports the initiation of discussions regarding the exit from the current monetary policy stance.

Japan's industrial production rises 1.8% mom in Dec, a bounce in seesawing pattern

Japan's industrial production rose 1.8% mom in December, rebounding from prior month's -0.9% mom contraction, but missed expectation of 2.4% mom.

Manufacturers have tempered expectations for the coming months, predicting a -6.2% mom drop in production in January, followed by a modest 2.2% mom increase in February. The Ministry of Economy, Trade and Industry maintains its assessment of "seesawing" on production.

As an METI official indicated, the recent Noto Peninsula earthquake's impact on manufacturing appears minimal for January. However, production forecasts are clouded by the suspension of operations at Daihatsu due to issues with collision-safety test irregularities.

"Although we believe that the production sentiment of companies is gradually getting out of the bearish phase, for the time being, we need to pay attention to the impact of the suspension of auto manufacturers' operation," the official said.

In separate release, retail sales grew 2.1% yoy in December, well below expectation of 5.0% yoy.

Australia's CPI down to 4.1% yoy in Q4, monthly CPI down to 3.4% yoy in Dec

Australia's inflation data for Q4 show notable easing in price pressures. CPI rose by 0.6% qoq, a considerable slowdown from the previous quarter's 1.2% qoq and below expectation 0.8% qoq. This marks the smallest quarterly increase since Q1 2021. On an annual basis, CPI decelerated from 5.4% yoy to 4.1% yoy, coming in lower than the forecasted 4.3% yoy.

RBA's trimmed mean CPI, which is a measure of core inflation, also reflected this trend. It increased by 0.8% qoq and 4.2% yoy, down from 1.2% qoq and 5.2% yoy respectively in the previous quarter. These figures were below the expected 0.9% qoq and 4.3% yoy. Notably, this represents the fourth consecutive quarter of declining annual trimmed mean inflation, falling from a peak of 6.8% in Q4 2022.

Additionally, monthly CPI showed a sharp slowdown from 4.3% yoy to 3.4% yoy, undershooting expectation of 3.7% yoy.

NZ ANZ business confidence rises to 36.6, inflation expectations lowest since Nov 2021

New Zealand ANZ Business Confidence rose from 33.2 to 36.6 in January. However, Own Activity Outlook fell from 29.3 to 25.6.

In a significant development, inflation expectations decreased from 4.61% to 4.28%, reaching their lowest point since November 2021. Despite this decline in inflation expectations, a high number of firms still plan to increase their prices, with the pricing intentions index only marginally decreasing from 50.2 to 49.7. Cost expectations also saw a slight reduction, moving from 76.2 to 75.6, but they remain at elevated levels.

ANZ's commentary on the situation pointed out that the New Zealand economy is at a critical point, expressing a cautiously optimistic outlook. They anticipate that RBNZ has implemented sufficient tightening measures and expect a gradual realization of their impact, leading to a possible initiation of "a steady stream of OCR cuts" by August.

China's NBS PMI manufacturing ticks up to 49.3, contraction continues

China's manufacturing sector remained in contraction for the fourth consecutive month, with NBS PMI Manufacturing index marginally rising from 49.0 to 49.3 in January, slightly below the expected 49.3.

The continued manufacturing contraction is evident in the subindexes: new orders was 49.0, marking the fourth month of contraction, while new export orders index stood at 47.2, contracting for the tenth consecutive month. A concerning detail is the employment subindex, which fell to a 13-month low of 47.6, indicating contraction for 11 straight months.

On a positive note, the manufacturing sector's production index attained a 4-month high, advancing to 51.3, and has sustained expansion for eight consecutive months.

In contrast, PMI Non-Manufacturing saw a slight improvement, rising from 50.4 to 50.7, marginally above the forecast of 50.6. Consequently, PMI Composite, which encompasses both manufacturing and services sectors, reached a four-month peak of 50.9, up from 50.3 in the previous month.

ECB's Lagarde emphasizes wage growth as key determinant for rate cut decision

ECB President Christine Lagarde emphasized that the central bank is not yet ready to initiate rate cuts, underscoring the need for comprehensive data analysis

In a CNN interview, she stated, "We are not there yet," added that the decision to loosen monetary policy hinges on "all sorts of data". She also singled out the significance of wage data as "critically important."

Despite acknowledging a clear disinflationary trend, Lagarde noted that ECB requires a deeper understanding and progression into this trend to make a well-informed decision. "We are on a disinflationary trend — no question about it," she confirmed, "But we need to be further into that process."

Lagarde's remarks also touched upon the consensus within the ECB regarding the direction of the next policy move. "I think we all agree that the next move" will be a cut, she said, aligning with the general anticipation of eventual rate reductions. However, the timing remains uncertain and subject to thorough examination of upcoming economic data.

A key factor in the timeline for interest rate cuts is the availability of wage growth data, which is not expected until after ECB's April meeting. This positions the June meeting as a more likely juncture for the consideration of rate cuts.

Looking ahead

Germany will release import price index, retail sales, unemployment rate and CPI flash in European session. Swiss will release retail sales and Crudeit Suisse economic expectations. Later in the day, Canada GDP will be a focus in US session. US will release ADP employment, employment cost index and Chicago PMI. But the main event will be FOMC rate decision and press conference.

AUD/USD Daily Report

AUD/USD dips notably today but still stays in range of 0.6524/6639. Intraday bias remains neutral and further fall is still expected. On the downside, firm break of 0.6524 support will argue that whole rebound from 0.6269 has completed, and bring deeper fall to this support. On the upside, however, firm break of 0.6639 will turn bias back to the upside for stronger rebound instead. CPI Miss Drives Aussie Down, Dollar Sees Modest Rise Pre-FOMC_2

CPI Miss Drives Aussie Down, Dollar Sees Modest Rise Pre-FOMC_2

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Sideway trading could continue in range of 0.6169/7156 for some more time. But as long as 0.7156 holds, an eventual downside breakout would be mildly in favor. CPI Miss Drives Aussie Down, Dollar Sees Modest Rise Pre-FOMC_3

CPI Miss Drives Aussie Down, Dollar Sees Modest Rise Pre-FOMC_3

Source: ActionForex

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Cohen

Political

Economic

In an effort to win voters ahead of the 2024 US election, Treasury Secretary Janet Yellen said the middle class is better off under President Joe Biden's administration than they would be under Donald Trump.

“Overall, the Biden administration has put in place the most extensive set of policies and investments to benefit the middle class and grow the economy that our country has seen in my lifetime,” she said in prepared remarks at the Economic Club of Chicago.

Ms Yellen's speech came days after the White House acknowledged that Mr Trump would likely be the Republican nominee following his victory in the New Hampshire primary.

With a Biden-Trump rematch a near certainty at this point, Ms Yellen used her remarks to contrast their two economic policies, pointing to the $1.2 trillion infrastructure bill Mr Biden signed into law in 2021.

“In the Trump administration, the idea of doing anything to fix it was a punchline. But this administration has delivered,” she said.

She also touted the “Bidenomics” agenda – which has put the middle class at the centre of economic activity – saying it has allowed the US to establish “the fairest recovery on record” since the Covid-19 pandemic wiped away millions of jobs.

“None of these policies are aiming to recreate an earlier era. This country and the world have changed and we cannot go back,” she said.

“President Joe Biden's economic policies have done more to support workers than former president Donald Trump.”

Ms Yellen also took aim at Mr Trump's Tax Cuts and Jobs Act, saying it did little to help workers.

“In the Trump administration, the idea of doing anything to fix it was a punchline. But this administration has delivered,” she said.

“None of these policies are aiming to recreate an earlier era. This country and the world have changed and we cannot go back,” she said.

“President Joe Biden's economic policies have done more to support workers than former president Donald Trump.”

Ms Yellen also took aim at Mr Trump's Tax Cuts and Jobs Act, saying it did little to help workers.

Yellen Contrasts Biden And Trump Economic Policies In Bid To Win Voters_1

In his own campaign, Mr Trump has said he would enact tariffs at up to 10 per cent on most foreign goods to spur domestic production. In previous remarks, Ms Yellen said the plan would only increase costs for US consumers.

He has also said he would “adopt a four-year plan to phase out all Chinese imports of essential goods”, including on electronics, steel and pharmaceuticals.

Strong data, wary voters

During her remarks, Ms Yellen was also quick to acknowledge that the economy had proved many forecasters wrong in their recession predictions.

The US economy grew 2.5 per cent last year, far better than expectations, while the same report showed core inflation averaged 2 per cent from October to December.

Source: US Labour Department, US Commerce Department

Consumer sentiment has also increased by 29 per cent over the past two months, according to a University of Michigan survey.

That has not translated to favourable polling for Mr Biden, however.

Nearly two thirds of US adults disapproved of Mr Biden's handling of the economy, according to an AP-NORC poll from December.

“I think if inflation remains low, the labour market remains strong … I think you'll see sentiment improving,” Ms Yellen said.

Source：The National News

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Alex

Economic

US consumer confidence increased in January to the highest level since the end of 2021 as Americans grew more upbeat about the economy and the job market amid more sanguine views about inflation.

The Conference Board’s gauge of sentiment increased to 114.8 from a revised 108 a month earlier, data published Tuesday showed. The January figure matched the median estimate in a Bloomberg survey.

A gauge of current conditions surged to the highest since March 2020. The measure of expectations rose to a six-month high. Consumers expected the inflation rate to average 5.2% in the next 12 months, the lowest level since March 2020. US Consumer Confidence Climbs To Highest Since End Of 2021_1

US Consumer Confidence Climbs To Highest Since End Of 2021_1

“January’s increase in consumer confidence likely reflected slower inflation, anticipation of lower interest rates ahead and generally favorable employment conditions as companies continue to hoard labor,” Dana Peterson, chief economist at the Conference Board, said in a statement.

The third-straight monthly increase in confidence suggests at least some of the momentum in household spending late last year will endure. Resilient demand, accompanied by a healthy job market and improved inflation expectations, has the potential of keeping the economy on its expansion path.

The confidence data, however, showed buying plans eased. The shares of consumers expecting to buy cars, homes and major appliances all slipping from a month earlier.

Whirlpool Corp. projected sales this year will be weaker than Wall Street expectations, renewing concerns that shoppers will pull back from big-ticket purchases. Results issued Monday for the owner of the Maytag and KitchenAid brands also indicate a sluggish housing market.

“We continue to see an environment where the discretionary part of our business is under pressure,” Jim Peters, Whirlpool’s chief financial officer, said in an interview. “That’s typically when homeowners buy an existing home and they come in and replace the appliances — they make the decision to upgrade.”

Views of the job market improved from December. The share of consumers who said jobs were currently plentiful increased to a third month, to the highest since April The difference between those saying jobs are plentiful versus hard to get — a metric closely followed by economists to gauge labor-market strength — also improved.

Separate figures out Tuesday showed job openings increased in December to a three-month high. Vacancies increased to 9.03 million, exceeding all projections in a Bloomberg survey of economists.

Source：Bloomberg

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FastBull Featured

Remarks of Officials

European Central Bank (ECB) President Christine Lagarde said in a speech made on January 31 local time as follows.

Although inflation is trending down, we still need to promote the disinflation process further. When to cut interest rates will be decided in mid-2024, later than the expected April policy meeting.

The inflation has not fallen to a level where interest rates can be cut. We still need to see a variety of economic data, and the most vital one is the wage data which will decide when to start easing monetary policy.

Whether the ECB Governing Council members are hawkish or dovish, there is a consensus that the next move is to cut interest rates. The ECB has only one mandate: to achieve its 2% inflation target.

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CMC

Economic

Central Bank

Forex

European markets underwent a broadly positive session yesterday with the CAC 40 setting a record high, while US markets finished the day mixed with the Nasdaq 100 sliding back, the S&P500 finishing flat, and the Dow finishing higher.

As we look towards today’s European market open the focus today will be on the spillover effects of last night’s quarterly earnings numbers from Microsoft and Alphabet, as well as the latest inflation numbers from France and Germany and today’s Fed rate decision.

Yesterday’s Q4 GDP numbers from Europe’s four biggest economies may have tempered some of the recent market enthusiasm that the ECB might be compelled to bring forward the prospect of a rate cut from the current consensus of June, given that better than expected data from Italy and Spain prevented the bloc from slipping into a technical recession.

We’ve also heard from several ECB policymakers in recent weeks that, particularly the likes of Joachim Nagel from the German Bundesbank as well as Robert Holzmann from the Austrian central bank who both pushed back on the idea of an early rate cut. There have also been some dovish voices like Mario Centeno of the Portuguese central bank who have argued that the ECB shouldn’t wait, but the consensus has been not to expect much before June.

This thinking might be shifting if yesterday’s comments from Joachim Nagel are any guide, when he indicated that he is convinced that the ECB has tamed the “greedy beast” of inflation. This softening of tone from one of the ECB’s most notable hawks could signal that an April rate cut from the ECB is becoming much more probable.

Today’s flash inflation numbers for January could reinforce this shift in thinking if as expected the big jump in the December numbers subsides when the latest French and German CPI numbers are released today.

French CPI is expected to slow from 4.1% to 3.6% in January with the month-on-month figure expected to decline by -0.1%.

German CPI is expected to slow from 3.8% to 3.2% with the month-on-month figure expected to decline by -0.2%.

Having seen the ECB keep rates on hold last week, today is the turn of the Federal Reserve where we could see the central bank look to put a pin in the idea that a March rate cut is coming. That’s not to say the Fed will rule the idea of rate cuts coming, simply that March is too soon for a data dependant central bank.

Since Powell’s December press conference when he admitted that the committee had discussed rate cuts only 2 weeks after dismissing the idea at the beginning of December markets have decided that March is a live meeting.

In December the FOMC returned the 2024 dots to 4.6% back to where they had been in September, while forecasting core PCE to decline to 2.4%. Having signalled the death of higher for longer the debate has now switched to when rate cuts are likely to begin, with the markets running away with the idea that we could see the first cut in March.

While several major banks have signalled that the Fed could well set the scene for just such a move at today’s meeting, the idea that the US economy needs a rate cut now comes across as fanciful when you compare its economy to that of Europe.

Last week it was revealed that the US economy grew at 3.3% in Q4, well above forecasts of 2%, with the US consumer still looking resilient. Yesterday consumer confidence rose to its highest level in 2 years while in December the number of job openings rose rebounded to a 3-month high.

Today’s ADP report is expected to show the US economy added another 150k jobs in January, slightly down from the 164 in December, with the FOMC likely to take note that while inflation has been slowing a resilient jobs market could prompt a rebound in wage growth, or at least create a floor for it.

As such it would be surprising if the Fed were to signal a cut in rates in March although they might well open the door to one on Q2, however they will also be keen to temper the markets idea that we could see as many as six, which was being priced earlier this month.

Bond markets have already tempered their enthusiasm for a March rate cut with 10-year yields back above 4% while 2-year yields have rebounded from lows of 4.12% earlier this month to be back above 4.3%.

If the Fed is minded to deliver a rate cut in March, and temper rate expectations for this year, then today is the perfect opportunity to signal its intention, or prick the markets enthusiasm once and for all.

EUR/USD – continues to look a little soft after slipping briefly below the 1.0800 area on Monday, raising the prospect that we could see a move towards the 1.0720 area. Resistance at the highs last week at 1.0930 and behind that at 1.1000.

GBP/USD – slipped briefly below the 50-day SMA yesterday but remains above support at the 1.2590 area. We need to get above 1.2800 to maintain upside momentum and target the 1.3000 area.

EUR/GBP – rallied to the 0.8570/80 area yesterday before slipping back. While below this resistance the risk remains for a move towards 0.8470. Above 0.8580 potentially targets the 0.8620 area.

USD/JPY – currently in a range between the recent highs at struggling to move back through the 148.70/80 area for the time being, with support at the 146.65 area which saw the US dollar rebound from last week. Above the 148.80 area potentially opens a move towards 150.00.

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Swissquote

Economic

Central Bank

The data flow since November has pointed in this direction, and today's CPI release seals the deal: the RBA will keep the cash rate on hold next week, and it is unlikely to raise rates further this cycle

At its previous forecast round in early November, the RBA was expecting both headline and trimmed mean inflation to be 4.5% over calendar 2023. The implied forecast for the quarter was around 1% in both cases. The actual result was 0.6% in the quarter and 4.1% over the year for headline CPI inflation and 0.8% and 4.2% for the bellwether trimmed mean measure.

The detail was slightly below our expectations, and noticeably below the RBA's. Domestic inflation is now clearly coming down. Market services inflation has dropped significantly. The monthly CPI indicator for December was distorted by base effects involving holiday travel, but measures excluding this are now running in the low 4% range and clearly heading down.

These inflation outcomes need to be seen in the context of the soft flow of data since November. In particular, the September quarter national accounts were noticeably weaker than the RBA expected. This cast doubt on the Board's assessment that domestic demand remained resilient. Subsequent data on retail spending and the labour market has only reinforced those doubts. The squeeze on household incomes from high inflation and a rising tax take, as well as higher interest rates, has continued. Consumer spending and sentiment are both soft; investment spending did not hold up as the RBA expected in the September quarter national accounts. As Westpac Economics colleague Senior Economist Andrew Hanlan noted earlier today, business investment is likely to stall this year.

Some of the upside risks the Board minutes had been calling out in recent months have not come to pass. The increase in housing prices, mentioned in the December 2023 minutes, is now losing steam, especially in Sydney and Melbourne. The concerns raised the same month that falling inflation would boost households' purchasing power – and so spending – have been ruled out by the subsequent release of the September quarter national accounts. That national accounts release also showed that the RBA's concerns about falling productivity had been somewhat overblown. As we had predicted ahead of the release, productivity ticked up in the September quarter and the history was revised up.

Despite this, the RBA and its Board have been sensitive to the risks that inflation would not come down as quickly as they want. In their November forecast round, they had pushed out their expectations for the date that inflation would return to target to end-2025, and they were clearly uncomfortable about this. They had also concluded that inflation was increasingly driven by domestic factors: a conclusion that, we believe, did not adequately allow for the effects of displaced demand on some prices – the “other fruit” problem. In the minutes following that meeting, the Board noted “lowering inflation from its current level would require growth in aggregate demand to remain subdued”. In our view, aggregate demand is already subdued and does not need further policy tightening to keep it there.

Another concern of the RBA Board was the possibility that inflation expectations could lift. While the usual measures of the expectations of consumers and market participants are a little higher than pre-pandemic, they are still well within the target range. In any case, the pre-pandemic period was characterized by inflation being below the target. Some increase from those levels is therefore entirely consistent with the RBA achieving its goals.

Given these concerns, the RBA Board therefore is unlikely to rule out further rate increases entirely in their post-meeting communication. But the case to raise rate from here is steadily losing traction. We expect that over coming months, further declines in inflation and soft outcomes in the real economy will give the Board enough confidence that inflation will return to target on the desired timetable. They will therefore have scope to reduce some of the current restrictiveness of policy. We continue to expect the first rate cut no earlier than September.

In articulating their decision, the Board will have the advantage that the Bank's forecast horizon will roll forward to mid-2026 this round. It is therefore entirely possible that the staff forecasts can now be shown with inflation ending the period at 2½%, the midpoint of the 2–3% target range. Specifying when inflation would reach that midpoint was one of the recommendations of the RBA Review.

Also changing following the RBA Review recommendations are some of the arrangements around the Board meeting itself and the release of the Statement on Monetary Policy (SMP). The meeting will now take place over two days. This will give the Board more time to discuss the outlook and risks, and the staff more time to present scenarios and other analysis that could not easily be fit into the agenda in the previous shorter-format meeting. It will allow also allow the Board to review both the media release and Overview of the SMP ahead of the policy announcement. The SMP can therefore now be released on the same day as the policy announcement. Along with the Governor's media conference the same afternoon, this will provide the RBA with more scope to explain its decision.

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