All eyes on Bullock presser now after RBA’s somewhat messy July rate decision

Traders were pricing in ~92% odds of a 25 bps rate cut today and the RBA did not deliver on that. Instead, the central bank left the cash rate unchanged at 3.60% and tried to provide some transparency to the decision. The cash rate vote was decided by a majority; 6 in favour, 3 against. That is definitely interesting and we’ll get to that in a bit. But how did markets get so wrongfooted coming into the decision?

Besides their mandate on price stability, one of the RBA’s “side quests” is to better communication so as to make smoother the transmission of monetary policy. And one can argue that given what markets were pricing in before the decision, that did not occur. There’s definitely some work to be done there and Bullock has to try and defend that later.

Don’t get me wrong. I love it when central banks stick up for themselves and not to get bullied by market pricing. But could the RBA really have done better here? I would like to think so.

I mean, when you talk about having potentially cutting by 50 bps in May and tried to make it a point as seen here, you’re asking for some reaction out of markets. Bullock did note however that “it was not the strongest argument in the room” but still. There was no further clarity on that in the lead up to this meeting, so that pretty much explains how markets got carried away with the train of thought.

As for the cash rate vote itself, it does intrigue. A 6-3 majority is modest in favour of keeping the cash rate unchanged. So, is there a need for markets to readjust their pricing by year-end?

Coming into today, traders were seeing ~74 bps of rate cuts by year-end. And with four more meetings to go, that is still plausible. However, a lot will depend on what Bullock communicates later ahead of the next policy decision in August.

The key focus as such will be on the phrase “a little more information”. The RBA said that it wants to wait for that before committing to the next move. And they repeated that twice in the statement. Is the echo meant to send a subtle message to markets?

Does “a little more information” mean the next quarterly CPI report on 30 July? Based on the current context, I would believe so.

However, we’ll have to wait for Bullock later to come out to confirm that and provide more clarity for markets ahead of the August meeting surely.