What is the Yield Curve implying?
The below graph plots the Implied Forward Interest Rate yield curve (blue line) which is derived from the Interest Rate Swap yield curve (red line) as at 31 December 2019.
Any changes to today's yield curve will also change the implied forward interest rates and market expectations of future Reserve Bank changes to official interest rates.
The implied forward rates are interpreted as follows –
(i) It is highly unlikely that the Reserve Bank will cut the Official Cash Rate in February 2020.
(ii) It is highly likely that the Reserve Bank will keep the Official Cash Rate unchanged at 0.75% until May 2020.
(iii) It is highly likely that the Reserve Bank will start increasing the Official Cash Rate from August 2020.