Australia’s cash rate more likely to rise than fall

While the Reserve Bank of Australia (RBA) is widely expected to leave its cash rate at 4.75% on Tuesday, the swap market suggests that the cash rate will be aggressively cut over the next 12 months. This seems unlikely to us. Household spending has held up better than suggested by retail sales data, while the mining boom is fuelling inflationary pressures. In short, we believe that only a sharp fall in global demand would prompt the RBA to aggressively cut.

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