Australian Dollar: Markets doubt further tightening after RBA rate rise – Commerzbank

A cash rate increase to 4.85% was accompanied by softer guidance on further tightening from the Reserve Bank of Australia, according to Commerzbank’s Charlie Lay and Dr. Henry Hao. The vote was 6–3, with unemployment and housing among the concerns. Although inflation is now forecast to stay above 3% until the end of 2027, they note that OIS pricing indicates markets anticipate no further RBA rate rises and even modest cuts by late 2027.

RBA signals softer stance as markets price in rate peak

"The Reserve Bank of Australia (RBA) raised its cash rate by 25bp to 4.85%, but struck a less hawkish tone on further tightening. The vote was 6-3. Three members voted to hold amid concerns over rising unemployment and housing weakness."

"Nevertheless, she emphasised that RBA was preserving its policy options and remained concerned about persistent inflation and the risk of higher inflation expectations becoming entrenched."

"RBA revised up its inflation forecasts, with headline and underlying inflation now expected to remain above 3% until end-2027 and return to the mid-point of the 2-3% target only in mid-2028. The decision suggests the RBA may pause at its next meeting, although further tightening cannot be ruled out if inflation remains stubbornly elevated."

"The OIS market is pricing in just 10% chance of another 25bp hike in December and just 8bp by February 2027. They are pricing in a rate cut of 9bp by September 2027. In other words, the market is not expecting any more rate hikes by RBA."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)