Financial markets aren't convinced the RBA will hike rates until November next year

RODRIGO BUENDIA / AFP / Getty ImagesWill be quite a while, according to traders.
  • The Reserve Bank of Australia (RBA) has kept Australia’s cash rate unchanged for 20 consecutive meetings, the longest stretch without a movement in either direction on record.
  • Most mainstream economists don’t see an increase until mid-2019 at the earliest.
  • Financial markets don’t have a 25 basis point increase fully priced until November 2019.

The Reserve Bank of Australia (RBA) has kept Australia’s cash rate unchanged for 20 consecutive meetings, the longest stretch without a movement in either direction on record.

While it believes the next move is likely to be higher should economic growth hold above 3% over the next couple of years, no mainstream forecaster believes that rates will move until 2019 at the earliest.

Some think it could be 2020 before the RBA begins to lift official interest rates.

It seems financial markets share a similar view, at least based on the current levels for Australian interbank futures.

As seen in the chart below, futures traders, collectively, don’t have a full 25 basis point increase in the cash rate priced in until November 2019.

ASX Ltd

Not all that long ago, a rate hike was priced for the middle of 2019.

However, like a majority of economists, financial markets have gradually pushed back their expectations for policy normalisation, reflecting ongoing uncertainty towards the outlook for wage pressures and, more recently, Australia’s housing market.

Developments in Australia’s labour and housing markets, along with geopolitical threats abroad, will largely determine if rate hike expectations are brought forward, or pushed backwards, in the period ahead.

In the interim, the RBA’s stretch of policy inaction looks set to extend for some time yet.

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