Should the RBA follow the market's interest rate cut pricing?

Further official cash rate cuts are possible if a global Coronavirus COVID-19 pandemic develops and is sustained for longer and substantially hurts the economy.


The market’s 0.25% rate cut pricing (reflected in the below interest rate yield curve as at 29 February 2020) and expected on Tuesday, 3 March 2020, includes any negative impact on the economy from the Coronavirus and the stock market’s fall.


Last week’s stock market fall is just a blip in the overall performance of the stock market over the last few years and a correction was overdue.


Would a 0.2% or even a 0.4% hit in the March 2020 quarter GDP be enough for the Reserve Bank to cut interest rates further when property prices are skyrocketing at the fastest monthly, quarterly and annual rate ever?


The market is betting on certainty that the Reserve Bank will cut interest rates on Tuesday, 3 March 2020. Unlike other certainties, a bolter may come to spoil the party like Dandy Andy, the horse best remembered for upsetting the billed match between the immortals Vo Rouge and Bonecrusher in the 1988 Australian Cup.


It is considered prudent for the Reserve Bank to patiently wait and act as appropriate.