If the Reserve Bank of Australia (RBA) doesn’t intend to cut interest rates any further, now would be an opportune time to start coercing market expectations.
According to the latest economist poll released by Bloomberg this afternoon, 22 of 23 surveyed believe that the bank will cut interest rates to a fresh record-low of 1.50% on August 2.
The National Australia Bank is the only bank predicting that cash rate will remain at 1.75%, and even they continue to state that the risks to its call lie to the downside.
Financial markets, as opposed to the trend of prior years, are a little less certain, currently attaching a 60% probability that a rate cut will be delivered.
One suspects that Australia’s June quarter consumer price inflation report released on July 27, along with next week’s UK “Brexit” vote, will go a long way to determining whether or not those expectations will be replicated in reality.
Here’s the implied future level of the RBA cash rate based off current futures pricing. The chart comes courtesy of the ASX.
While futures are not fully priced for an additional 25 basis point rate cut until November this year, unlike the vast majority of economists, markets continue to price a reasonable likelihood that the cash rate will fall below 1.50% in early 2017.