With traders estimating a 77 per cent chance that the Reserve Bank of Australia cuts interest rates on Tuesday, Treasurer Josh Frydenberg has a word for Australian financial institutions.
“We do expect the banks to pass on in full to the Australian people the benefits of sustained reductions in their funding costs,” the treasurer told reporters in Canberra on Monday.
The ASX RBA rate indicator uses the price of the ASX 30 day interbank cash rate futures to calculate what “the market” thinks the odds of an interest rate cut are.
On Monday it predicted there was a 23 per cent chance of no change and a 77 per cent chance that rates would decrease to one per cent.
That’s up slightly from Thursday and Friday, when the market gave a 70 per cent chance of a rate cut.
Reserve Bank governor Philip Lowe has been hinting about the need for further cuts, given April’s increase in the unemployment rate to 5.2 per cent and the country’s stubbornly low economic growth.
Nomura analyst Andrew Ticehurst said in a research note he thought the odds of a rate cut were more like 50/50, and there were arguments for and against one either way.
“If the RBA does not cut in July, we are quite confident it will cut in August,” he wrote.
“One way or the other, we think the cash rate will be 25bps lower, at 1.00 per cent, by mid-August,” with another 25 basis point cut likely in November.
“We also see the risk of a 0.50 per cent terminal cash rate as being greater than the risk of a 1.00 per cent terminal cash rate,” he said.
St. George Bank economists Besa Deda and Janu Chan, meanwhile, said in a research note that the exact timing of a rate cut was a close call.
“Given the clear signal in the minutes and comments by RBA Governor Lowe, we expect a 25 basis point cut at its meeting tomorrow, and we expect the RBA will lower the cash rate to 0.75 per cent by the end of the year,” they wrote.
The RBA had kept on interest rates on hold for a record 30 consecutive monthly meetings before reducing them on June 4, with ANZ and Westpac drawing criticism in some quarters for not passing on the full rate cut to mortgagors.
The July rates decision will be announced by the RBA at 1430 AEST on Tuesday.