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Central bank minutes cite shifting rate expectations and easing inflation risk
The minutes said long-term government yields rose, with the biggest moves in the United States and Japan, while near-term inflation compensation eased as oil prices retraced from earlier peaks.
Minutes from the Monetary Policy Board meeting discussed the global outlook for central bank policy rates, noting that market expectations differed across advanced economies over the coming 18 months. The board pointed to persistent underlying inflation concerns despite recent inflation readings generally coming in a little below expectations, and said several central banks had already tightened during 2026.
Members said expected increases in policy rates were larger where policy remained more accommodative, citing New Zealand, Canada, and Japan, while increases were smaller in Australia, the United States, and the United Kingdom. For the United States specifically, the minutes linked the higher expected rate path to resilient demand and persistent inflation, but added that the most recent Federal Reserve communication had been interpreted by market participants as lowering the likelihood of a near-term rate increase.
The minutes also addressed bond markets, saying long-term government yields had risen since the start of the year and that Australian sovereign yields rose by less than some peers. They attributed the most noticeable increases in longer term yields to a larger shift in policy rate expectations and implied risk premia in the United States and Japan, and said near-term inflation compensation from shorter-dated bonds eased in most countries, including Australia, as oil prices retraced from earlier peaks.
On broader financial conditions, the board said aggregate market volatility and risk premia remained low despite uncertainty tied to the Middle East conflict. It added that global equities had generally risen and corporate bond spreads stayed low, while equity prices tied to artificial intelligence were volatile and bond spreads widened for some AI-related issuers, reflecting shifts in fundraising and expectations around data centre returns.