The futures market expects the Reserve Bank of Australia to cut interest rates in 2023

The Reserve Bank of Australia is now expected to start cutting interest rates in mid-2023, after indicating it would pause a planned rate hike in April.

Minutes of an RBA board meeting said on Tuesday that the central bank would “reconsider the case for a pause” at a meeting next month.

The interbank futures market, which bets on interest rate moves, on Tuesday forecast a July rate cut that would bring the cash rate back to 3.35 percent.

A week ago, Australian Stock Exchange 30-day cash rate futures expected the RBA to put rates on hold at an 11-year high of 3.6 percent for the rest of 2023.

The collapse of American Silicon Valley Bank, Signature Bank, and Silvergate Bank, and the near-death of Credit Suisse in Switzerland have dramatically reframed interest rate predictions, even as inflation stands at a 32-year high. 7.8 percent.

Minutes from the Reserve Bank’s March meeting, released on Tuesday, indicated that it had considered a pause, signaling unforeseen developments that could threaten global financial stability.

“They agreed that upcoming releases on employment, inflation, retail trade and business surveys will provide important additional information, as will developments in the global economy,” he said.

“Members agreed to reconsider the case for a pause at the next meeting, acknowledging that the pause would allow additional time to reassess the outlook for the economy.”

The RBA’s March 7 meeting voted to raise the cash rate by another 0.25 percent, marking the 10th straight monthly increase.

Minutes from the Reserve Bank’s March meeting, released Tuesday, indicated it had considered a pause, signaling unforeseen developments that could threaten global financial stability (pictured, security guards outside its Silicon Valley headquarters Bank in Santa Clara, California)

But this was six days before the US Federal Deposit Insurance Corporation announced that it would guarantee SVB’s deposits, shortly before he was appointed a receiver.

Westpac chief economist Bill Evans said the RBA was worried about surprises even before the latest events in the US.

‘The minutes emphasize a high degree of uncertainty; do not take into account the global banking disturbances; and aim for a hiatus in April,’ he said.

ANZ continues to expect a 0.25 percentage point rate hike in April, which would take the cash rate to 3.85 percent, but senior economist Felicity Emmett said financial market uncertainty could halt a rate hike. rate.

A week ago, Australian Stock Exchange 30-day cash rate futures expected the RBA to put rates on hold at an 11-year high of 3.6 percent for the rest of 2023.

“Our base case remains another 25 basis point increase at the April meeting, although this assumes financial market volatility recedes,” he said.

None of Australia’s major banks expect a rate cut in 2023.

Westpac and Commonwealth Bank expect a cash rate peak of 3.85 percent in April or May of this year.

But Westpac expects seven rate cuts in 2024 and 2025 that would take it back to 2.35 percent.

ANZ and NAB expect two more rate hikes in April and May that would take the cash rate to 4.1 percent.