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Weekly Economic Commentary

Economic Weekly Newsletter

Categories: General, General

Welcome to 2015.

It already feels as though markets are returning to normal after the Christmas break as investors return from leave and the data flows resume.

The Commonwealth Bank is the most recent high-profile major bank to change its view on monetary policy. Last week, the CBA released a paper predicting that the Reserve Bank of Australia would hold the official cash rate steady through this year and lift the cash rate in the first quarter of 2016. The CBA believes the RBA will sit on the sidelines rather than make a cut to the already record low cash rate, as the falling Australian dollar and lower oil prices bind the RBA's hands. Previously, the CBA believed an interest rate rise in the latter half of 2015 was a possibility.

The CBA also expects talk will shift towards a “normalisation” of interest rates by the end of 2015, and a return to a 3.5% cash rate by the end of 2016.

Against this view however is futures market pricing that currently has an 80% probability of a cut by May and, if not then, certainly by June (refer chart below).

Chart

Source: Rural Bank

 

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