Thirty minutes before the horses jump in the 2018 Melbourne Cup, the Reserve Bank of Australia (RBA) will announce its November interest rate decision.
Unlike the “race that stops the nation”, the rates decision is likely to come and go with little fanfare, unless there’s a shock, of course.
That’s not just because many Australians are already out enjoying Cup functions, based on what I just witnessed on Pitt Street in Sydney, but also because no one thinks the RBA will touch rates for years, maintaining the status quo that’s been in place since August 2016.
This chart from Macquarie underlines why today’s decision is unlikely to be the policy decision that stops financial markets.
Using overnight index swaps (OIS) pricing — where markets believe the RBA cash rate will sit at a certain date in the future — it shows that traders are only attaching a 75% probability that it will sit at 1.75% by February 2020.
Collectively, they’re not even certain a 25 basis point rate hike will occur within 15 months.
It’s already been a long time between drinks when it comes to a RBA rate hike — the last occurred in late 2010. The prevailing theme in recent years has been for financial markets to push back when they expect the next hike will occur, as indicated by the downward-sloping lines in the chart.
While a surprise could be found in today’s statement, the RBA has already made it clear that it’s appropriate to hold the cash rate steady for the “bank to be a source of stability and confidence” while inflation gradually moves back towards the midpoint of its 2-3% inflation target.
Given that view will almost certainly be repeated today, it’s unlikely to interrupt Melbourne Cup festivities.