Australia 90-day bill futures have rallied across the curve since last week, implying a higher chance of a 25bp rate cut by the RBA at some point over the next six to eight months. March 2016 has declined from 2.01% to 1.86% and June 2016 has dropped from 1.96% a month ago to 1.78% today, notes Societe Generale.
However, with mortgage rates rising for macroprudential reasons, one could argue that a rate cut would be ineffective unless if helps to support business investment and borrowing for non-residential purposes.
After having cut its benchmark rate to 2.0% in May, the RBA has dropped its explicit easing bias and believes that monetary policy is appropriate to support economic growth. The RBA next meets on 3 November but may be disinclined to cut the cost of borrowing after the Chinese Q3 GDP data proved better than feared.
Growth slowed to 6.9% yoy in Q3 from 7.0% in Q2. But indicators of activity in September disappointed, and analysts are looking for stabilisation at weak levels, resulting in 2015 growth of 6.9% (below the official government target of 7%), says SocGen. The first batch of October manufacturing and non-manufacturing indices will be published on 1 and 2 November. The 5th plenum of China's 18th Communist Party Congress starts next week.
