Investors narrow bets to 50-50 on Aussie rate cut next week

Sydney

INVESTORS have ramped up bets on an imminent cut in Australian interest rates as central banks worldwide ease monetary policy to fight the disinflationary drag of falling commodity prices and lacklustre global demand. Markets now imply a 50-50 chance that the Reserve Bank of Australia (RBA) will cut its 2.5 per cent cash rate by a quarter of a point when it meets on Feb 3.

The probability had been less than 10 per cent a day earlier when an unexpectedly high reading for core inflation was taken as a setback to the case for an easing. "As a small and open economy, highly leveraged to the global growth and commodity cycles, there are good reasons that RBA cash moves generally in the same direction as global rates," said Su-Lin Ong, a senior economist at RBC Capital Markets. "Risk-reward is shifting against staying on the sidelines," added Ms Ong, who is now tipping two cuts this year.