RBA: Markets now price only a 25-30% chance of a cut by Dec 2016 - Westpac

Martina Song, Research Analyst at Westpac, suggests that after the RBA cut the cash rate in Aug to 1.5%, Westpac expects the cash rate to be kept at 1.5% throughout 2017 and markets now price only a 25-30% chance of a cut by Dec 2016.

Key Quotes

“Its Aug quarterly statement projected sustained low inflation that leaves the door open for yet more easing at some point. Core CPI is only seen returning to the bottom of the RBA’s 2-3% band by June 2017 and not rising from 2% (mid) even by Dec 2018.

The Sep statement and minutes indicated little urgency to cut further. The new agreement between the RBA governor and Australian treasurer signed mid-Sep reinforced this, as it changed the target of reaching 2-3% inflation “over the cycle” to “over time” and increased focus on financial stability (such as asset prices).

Q2 GDP was strong, at 3.3%y/y. This contributed to interest rate markets trimming pricing for further easing. Markets now price only a 25-30% chance of a cut by Dec 2016.”