Australia’s September quarter consumer price inflation (CPI) report will be released today.
It’s a data point that has often shifted expectations for official interest rate settings in the past, and today’s report will be no exception.
Ahead of this key release, it’s worthwhile having a quick look at market expectations for the RBA cash rate over the next couple of years.
This chart from Macquarie Bank shows current expectations based on overnight index swaps (OIS) pricing.
As things currently stand, markets are only 60% priced for a 25 basis point increase in the cash rate — taking it to 1.75% — by early 2020.
Economists share a similar view with the median forecast offered to Bloomberg looking for a 25 basis point increase by the final quarter of next year.
The RBA has not increased its cash rate since late 2010. The last movement down occurred in August 2016, coincidentally following the release of a weak CPI report for Q1 2016.
In recent years both markets and economists have continually pushed back the expected timing of rate hike, largely as a result of ongoing softness in inflationary pressures.
The RBA has talked a lot about the need for inflation to return to the midpoint of its 2-3% target in recent commentary. Until its confident that inflation will move back towards 2.5%, the cash rate is likely to remain at its present level.
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