From Harvey Bradley, Portfolio Manager at Insight Investment regarding Reserve Bank of Australia interest rates decision.
The RBA left rates unchanged at their September meeting as the market had expected.
The domestic activity and labour market data has continued to be robust, which negates the need for the RBA to join developed market peers in cutting policy rates, most notably the Federal Reserve who kicked off their cutting cycle with a 50bps move earlier in the month.
We continue to think that the RBA will be the last developed market, with the exception of Japan, to cut policy rates in this cycle. In part, this is because the RBA were more cautious than other central banks in the hiking cycle and did not take policy rates to as restrictive levels as peers.
Also read: Where Does The Fed Go Next After 50 Basis Point Interest-rate Cut?
Our base case remains a first cut in 6 months time, followed by a further 50-75bps in 2025 to take the policy rate towards a neutral level.
Australian government bonds have performed well but have lagged developed market peers where policy rates have already been lowered. However, we do think Australian government bonds offer attractive relative value given a higher implied terminal rate than peers and a better fiscal backdrop than peers.
