BofA Securities participated in the preparation of this report, in part, based on information provided by Philippine Equity Partners, Inc. (Philippine Equity Partners). ^^Philippine Equity Partners employees are not registered/qualified as research analysts under FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Securities entities that take responsibility for the information herein in particular jurisdictions. BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 9 to 10. 12654148 Asia Economic Weekly Australia – RBA set to hold, dovish pivot seems unlikely Softer CPI increases expectations for earlier cuts The new RBA board meets on 5-6 Feb, and we expect rates to be on hold at 4.35%. Inflation ended 2023 at 4.1%. This is lower than the RBA’s assumption of 4.5% and the labor market remains in good shape. While a dovish pivot is unlikely at this meeting, we expect changes in tone to address further traction from high rates, progress towards the CPI target and confirmation that rates have peaked. A Statement on Monetary Policy, new forecasts and a post-meeting speech will be delivered right after the decision for the first time. Changes to the RBA Board and length of the meetings should be reflected in the usual post-meeting statement. Despite the downside surprise to CPI, non-tradable inflation rose 1.3% qoq and services inflation rose 1.0%. Indeed, inflation expectations have moved sideways. This means a dovish pivot is unlikely, in our view. Nonetheless, mark-to-market changes to the RBA forecasts suggest the mid-point of the inflation target could be reached earlier than anticipated. We currently expect the first cut in February 2025 but faster progress towards the CPI targets increases the probability of earlier cuts. Exhibit 1: Inflation expectations move sideways… … despite slower growth in CPI Source: ABS, Bloomberg, Macrobond BofA GLOBAL RESEARCH New Board, more uncertainty While economic data suggest the RBA will be comfortably on hold as domestic inflation remains high and sticky, there is increased uncertainty about the changes in communication that emerge from the new RBA structure and press conference. M. Fuchila 33.544.555.566.501234Dec-15Dec-17Dec-19Dec-21Dec-23AU 5y breakevens (lhs,%)AU Consumer inflation expectations (rhs, %, 2y ahead)02 February 2024 GEM Fixed Income Strategy & Economics Asia Table of Contents Australia in Focus 2 Data Preview 5 Macro Forecasts 6 Research Analysts 10 Helen Qiao China & Asia Economist Merrill Lynch (Hong Kong) helen.qiao@bofa.com Izumi Devalier J...
