The Reserve Bank made it pretty clear on Friday in its bi-annual Statement on Monetary Policy- “a period of stability in rates is likely”. So, no change to the RBA cash rate of 2.5% in the foreseeable future.
However, while the RBA won’t be changing its cash rate, it doesn’t mean that the markets won’t start to do some of the heavy lifting for them. Financial markets don’t like stability for very long – and markets only move in one of two directions, up or down. If we have come to the bottom of the down cycle, it means market-based rates (bank bill and bond rates) can ultimately only go one way – and that’s higher.
The markets will need reasons to take interest rates higher, such as the threat of higher local inflation, a plummeting Australian dollar or more likely, rising US bond yields. While these triggers may not be immediate, the direction on market interest rates is now pointing up.