I’m not sure if it’s just because of the nature of my work, but this seems to be the most talked-about event here. Having said that, it’s even a topic of conversation amongst my mates when the RBA announcements are made. To be fair, it’s mostly just single-word commentary – calling the people who work at the RBA something that sounds like shunts.

What has become increasingly clear is the rift between the RBA’s commentary and market expectations. While the RBA repeats its mantra about inflation coming down slower than expected, the economy running hot, and even the possibility of a rate rise, the market has finally come to our point of view and no longer believes it. As always, the market has an uncanny knack for sniffing out the truth no matter the official commentary.

Let’s have a quick look at the data first.

Most Australians, whether they be mortgagees or renters, are hurt, and the only job growth comes from the public sector – particularly health and education. Consumer sentiment is worse than during COVID. Retail and hospitality are dead, and insolvency rates are increasing sharply.

Similarly, the forward indicators for employment look terrible, with AMP’s leading indicator pointing to further weakness.

There’s a clear disconnect When reconciling the data against the RBA’s words. Nothing makes sense. The four major banks unanimously call for the next move to be down, with the first cut coming between three to nine months.

• ANZ – Feb 2025 (6 months)
• CBA – Nov 2024 (3 months)
• NAB – May 2025 (9 months)
• WBC – Nov 2024 (3 months)

This is echoed in the futures market, which has also fully priced in a cut by December and four further cuts by the end of next year.  

In fact, the RBA’s own inflation forecasts show that inflation is falling faster than initially expected. It seems they don’t even believe themselves anymore.

One interesting thing about the pandemic is that it aligned many interest rate policies worldwide. The vast majority of central banks cut and then raised interest rates sharply. They are now back peddling again at top speed, with central banks cutting at the fastest rate since August 2020.

At present, 39% of central banks have initiated rate cuts. We won’t be far behind despite what the RBA’s official position is.