IB futures are back to pricing a cash rate of ~3.10% come the end of the RBA’s December meeting (per BBG WIRP), little changed vs. levels observed at the end of Tuesday’s volatile session, while terminal rate pricing continues to hover around the 3.50% mark. A quick reminder that we still deem market pricing surrounding the terminal rate to be somewhat aggressive, given the fact that the RBA is already making references to higher interest rates weighing on household consumption (owing to a record high debt/income ratio), growing recessionary fear in the U.S. & Europe which is resulting in deeper Federal Reserve rate cuts being priced into ’23, organic RBA tightening already set to take place in ’23 and the required velocity of rate hikes that the RBA would have to pursue to achieve the tightening priced into markets against this backdrop.
Fig. 1: RBA Meeting Dated Dec ’22 Cash Rate Pricing
Source: MNI - Market News/Bloomberg