Breakeven plumbs depths
The Reserve Bank's challenge: markets don't believe they are serious about returning inflation to target, with the 10-year breakeven inflation rate approaching the lowest level on record at 1.55 per cent.
The breakeven rate is a market-based measure of inflation expectations, and it tends to be more reliable than surveys since bond investors are keenly interested in correct pricing.
Source: Bloomie
And that was yesterday, before China reportedly opted to cap imports of Australian coal at certain ports.
It's not all on the Reserve Bank's head - the RBA is responsible for monetary policy and setting the interest rate on overnight loans.
But the crash in expectations has been driven largely by extraordinarily tight access to credit rather than the level of the cash rate.
Financial markets have moved on, and are pricing further cuts.
Source: ASX
Westpac expects interest rates to be cut in August, and then cut again in November.
