The Reserve Bank meets again this week and is almost certain to leave rates on hold for the 14th consecutive meeting. Financial market expectations of future RBA rate increases have been very volatile recently (see chart below). Just before the October RBA Board meeting, expectations of a rate hike by June was fully priced in and the probability of another hike by the end of 2018 was just above 50%. Weak economic data releases over the last month (retail sales and inflation) have unwound these expectations and now the markets aren’t confident that rates will rise at all next year, despite the unemployment rate falling to a four-year low.
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