Market not pricing first cut until well into 2025

Posted on November 6, 2024 by Pete Faulkner - Inflation, Interest Rates, Uncategorized

As we noted last week following the release of the third quarter CPI data, the RBA are clearly in no hurry to start cutting rates. Their recently released Statement on Monetary Policy (SOMP) starts out with a clear message…

“Underlying inflation remains too high.
Headline inflation has fallen sharply in recent months as expected, due to declines
in fuel and electricity prices. Headline inflation was 2.8 per cent over the year to the
September quarter, down from 3.8 per cent over the year to the June quarter. This was as
expected due to declines in fuel and electricity prices in the September quarter. But part
of this decline reflects temporary cost-of-living relief. Underlying inflation, which is more
indicative of inflation momentum, remains too high. Trimmed mean inflation was 3.5 per cent
over the year to the September quarter and in quarterly terms the pace of decline has been
gradual since mid-2023.”

The markets have clearly taken this message onboard (finally!) and the cash rate futures are now not fully pricing the first of a series of 25bps cuts until May/June 2025. This is a very clear shift in sentiment in a market that, until recently, had been pricing in a high likelihood of a cut as early as the end of this year or early next year.