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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
AUSTRALIA
The latest CPI and GDP data and May RBA forecasts suggest that a rate cut is not consistent with current and expected economic fundamentals according to our simple policy reaction function. As a positive inflation gap is forecast to mid-2026 and the output gap is only slightly negative, rates should be around 35bp higher to be consistent. This implies that there is still a risk of further tightening in line with the Board’s choice between a hike or a pause in May. The OIS market doesn’t have a full cut priced in until Q3 2025.
Australia policy reaction function %
Source: MNI - Market News
- Q1 CPI and the upward revision to the RBA’s 2024 inflation outlook have resulted in the equation estimating rates 2-4bp higher this year. The inflation gap variable leads by two quarters and so the forecasts are important for the estimates. The RBA revised up Q4 2024 0.6pp to 3.8% and Q2 2025 0.1pp to 3.2%.
- The rate equation estimates including house prices are around 4bp lower for 2024 than in February but around 10bp in Q2 2025, as dwelling inflation has eased on a quarterly basis over the last two quarters. But the results are still consistent with rates on hold for the foreseeable future with the risk of a hike.
- It is worth noting that econometric calculations are only estimates and not predictions.
Australia RBA cash rate estimates %
Source: MNI - Market News/Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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