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Mar 02

RBA Cash Prediction

Its the day before the RBA announces its latest cash rate so I thought I’d come in with a late prediction.

Its pretty simple really…September 09 Government Bonds are trading at a yield of 2.82% today so the market is expecting one of two rough possibilities…

  1. the Reserve Bank drops the cash rate by 50bps to 2.75% and keeps it there for the next 6 months, or
  2. the Reserve Bnak drops it by 25bps tomorrow to 3.00% followed by another 25-50bps between April and June and keeps it at 2.75% through to September

I’m not sure what the probabilities are between these 2 possibilities, but I predict that option 2 is most likely. So for the record, the RBA will drop rates by 25bps on March 3 and will probably drop another 25bps in April. I personally believe these won’t be the only rate drops this year but the market is expecting different so who am I to disagree.

With August 2010 bonds trading at a yield of 2.76% it appears the market is a little more optimistic than it was a few weeks ago and perhaps expects a cash rate low of only around 2.5% which is a significant increase from a previously expected low of 2.00%. Perhaps things are looking up in Australia.

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