LOWER BUT LATER: Markets still think that the RBA will cut rates again

But not that kind of Slash… Photo: Scott Gries/Getty Images

Courtesy of ANZ comes this simple yet effective chart that shows current market pricing for the outlook for Australian interest rates.

Following the release of the June monetary policy statement earlier this afternoon, something that conveyed no explicit easing bias indicating that rates were likely to be reduced in the near-term, financial markets have pushed the expected timing of when the next rate cut will be delivered.

Based on overnight index swap (OIS) pricing, a gauge on market expectations as to where the RBA cash rate will sit in the future, markets are now not fully priced for a further 25 basis point rate cut until early next year.

Nearer-term, the odds of a rate cut in August have also shifted, falling from above 60% earlier today to around 40% at present.

Despite the diminished view from markets, ANZ retain the view that the RBA is still likely to cut rates again in August.

“The lack of an explicit easing bias makes an August rate cut a much closer call than we had previously thought,” said Felicity Emmett, head of Australian economics at ANZ.

“That said, we continue to expect a further cut given the size of the downgrade to the Bank’s inflation forecasts and the fact that the midpoint inflation forecast remains at or below the lower bound of the 2-3% target band for the entire forecast period.”

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