RBA’s cuts could be a thing of the past

Adam Smith 16 November 2016

percent graph trackFinancial markets now believe the Reserve Bank’s next move is likely to be up.

According to the Sydney Morning Herald, Credit Suisse data shows index swaps are pricing in around an 8% chance that the RBA will lift the official cash rate within the next 12 months. The change comes as global bond markets experienced a lift in yields based on speculation Donald Trump’s administration is likely to pursue economic policies that will cause inflation to rise, the SMH reported.

The RBA has also telegraphed the likelihood that its easing cycle is over. In a speech in Melbourne, RBA governor Philip Lowe expressed concern that household debt could grow to unmanageable levels should the Reserve Bank further trim the cash rate.

“It is unlikely to be in the public interest, given current projections for the economy, to encourage a noticeable rise in household indebtedness, even if doing so might encourage slightly faster consumption growth in the short term,” Lowe said, according to the SMH.

Should the RBA begin to raise rates again, some analysts are predicting the next tightening cycle won’t begin for some time. Citi economist Paul Brennan said the Reserve was likely to leave rates on hold throughout 2017, and told the SMH rates were unlikely to rise before mid-2018.

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