Portfolio Positioning: The RBA is in no hurry to cut interest rates, they say!

Michele Bullock played yesterday’s media conference with a very straight bat after the RBA left official interest rates at their 12-year high of 4.35%, but credit markets either don’t believe her or think she’s got it wrong.

At this stage, the RBA implied it’s closer to hiking, believing inflation is still “too high.” It stated, “We are not ruling anything in or out, but vigilance is to the upside.”
However, credit markets have zero belief that a hike is a risk and are still pricing at 80% chance of one cut before Christmas and three or four by the end of 2025.

The market clearly doubts whether the RBA seriously considered another hike. We’ve been saying for months that the RBA doesn’t want to hike, although it’s not totally off the table, and this view still feels on point. A few days of market volatility, largely driven by the unwind of the “Yen Carry Trade”, isn’t enough to make central banks cut interest rates; inflation is their primary focus, although they will remain vigilant to external circumstances, including ongoing market volatility. If we stand back and put things into context, the ASX200 is up +1.2% in 2024 and posted new all-time highs last week, numbers that shouldn’t unsettle the RBA.

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