After Brexit, markets see another RBA rate cut as a certainty

Photo: Steve Dykes/ Getty Images.

It’s a Brexit — Britain has decided to leave the European Union, and the ramifications are being felt far and wide across financial markets.

As a result of the market carnage, on a scale not seen since the global financial crisis, financial markets now see it as a certainty that the Reserve Bank of Australia (RBA) will cut rates again, and perhaps more than once.

According to Australian cash rate futures, the odds of a rate cut to 1.50% by August are now oscillating at around 90%. Looking further ahead, the odds of an additional rate cut to 1.25% in November are currently seen as a one in three chance.

ANZ, like many others, believe the UK Brexit will place additional pressure on the RBA to act.

“Our existing view on the RBA is that persistently low inflation narrowly favoured a rate cut in August. We think that Brexit could place additional pressure on the RBA to cut rates if continued market volatility materially dents confidence,” wrote the ANZ’s economics team in a research note released late Friday afternoon.

The movements in the Australian dollar will also be influential, they believe.

“We also think the AUD/USD will be important in shaping the RBA’s view on interest rates, where the decline to date in the exchange rate has only returned it to levels prevailing in early June.”

As at 5.35pm AEST, the AUD/USD currently trades at .7388, down 2.89% for the session.

From January 15 this year it has risen 8.3%.

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