The likelihood of a rate cut is increasing beyond May 2024 as financial markets forecast the benchmark interest rate to return to 4.1 percent by October next year.
There has been a dramatic change since the start of the week, when bond markets were convinced that signs of strong US employment indicated inflation was yet to be brought under control.
On Monday, the RBA’s prime interest rate was forecast at 4.7 percent, meaning at least two rate hikes until February next year. But weak Chinese economic data, Dr. Lowe’s comments and lower-than-expected US inflation have turned the market narrative on its head.
And if traders are right, the RBA under Dr. Lowe has done the hard work fighting to bring inflation back on target. The RBA hiked rates from 0.1 percent in May 2022, pausing only twice in 14 meetings.
Bullock continuity
Ms Bullock’s appointment points to an easier transition to a new system of decision-making at the RBA, which will hold fewer meetings and be led by a dedicated monetary policy committee.
“The election of Michelle Bullock – a longtime RBA insider – likely portends less change and more continuity than if any of the other named candidates were successful,” TCorp’s Brian Redican told The Australian Financial Review.
“Michelle obviously knows all the RBA staff very well and they know her. Therefore, the transition should be much smoother than if an ‘outsider’ were appointed.”
Her appointment to the top post was all but secured after Opposition Leader Peter Dutton said he would not support the appointment of apparent front-runners Treasury Secretary Steven Kennedy and Treasury Secretary Jenny Wilkinson.
Others were surprised that an internal candidate will be the next governor.
“No change – she’s been there since the 1980s. It’s impossible to implement the recommendations of this review with an insider who has been with the institution for five decades,” said one investor, who asked not to be named.
Another dealer said, “Then why isn’t it Lowe?” “It makes it very clear that it was a political witch hunt,” said the dealer.
dr Lowe detailed Wednesday how the changes proposed in the RBA review would be implemented.
Most significant is the reduction in the number of meetings held per year from 11 to eight. The monetary policy statement will be published together with the interest rate decision, followed by a press conference an hour later.
Market supporters aren’t thrilled that November’s meeting, which clashes with the Melbourne Cup, remains on the political schedule.
dr Lowe was appointed governor in September 2016, succeeding Glenn Stevens. Incredibly, he didn’t change interest rates at all until June 2019 when he cut the benchmark interest rate to 1.25 percent.
The pandemic prompted Dr. Lowe led to a series of unconventional measures, including a bond purchase program, a yield curve target, the term financing facility and the ill-fated forward guidance, in which he vowed to keep interest rates on hold at 0.1 percent for three years.
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