Bond traders are maintaining a hawkish stance on the Reserve Bank of Australia, pricing in a 60% probability of a fourth interest rate increase by December.
The market’s reluctance to bet on a pause stems from the latest inflation data, which showed the central bank’s preferred trimmed-mean measure ticking higher last month, even as headline consumer price inflation showed signs of cooling.
The divergence between headline and core inflation metrics has complicated the RBA’s policy calculus.
While the drop in headline CPI might suggest easing pressure, the persistence in underlying inflation signals that price pressures remain embedded in the economy.
Consequently, fixed-income markets have held firm against the notion that the central bank has completed its tightening cycle, keeping the door open for further monetary tightening later this year.
This development underscores the broader challenge facing central banks in navigating sticky inflation.