The RBA Rate Indicator shows market expectations of a change in the Official Cash Rate (OCR) set by the Reserve Bank of Australia (RBA). The indicator calculates a percentage probability of an RBA interest rate change based on the market determined prices in the ASX 30 Day Interbank Cash Rate Futures.
What is the RBA Rate Indicator saying today?
As at 9 January 2015, the ASX 30 Day Interbank Cash Rate Futures February 2015 contract was trading at 97.540, indicating an 18% expectation of an interest rate decrease to 2.25% at the next RBA Board meeting. There is also an 82% expectation of “No Change” at the next RBA Board meeting. Source: ASX
The next Official Cash Rate announcement will be on the 3rd of February 2015.
The table below highlights how market expectations of an interest rate decrease at the next RBA Board meeting (February 2015) has evolved in recent days prior to 9th January 2015.
| Trading Day | No Change | Decrease to 2.25% |
| 30 December | 78% | 22% |
| 31 December | 78% | 22% |
| 2 January | 78% | 22% |
| 5 January | 80% | 20% |
| 6 January | 80% | 20% |
| 7 January | 78% | 22% |
| 8 January | 80% | 20% |
| 9 January | 82% | 18% |
Source: ASX
Calculations for ASX Target Rate Tracker (Based on 30 Day Interbank Cash Rate Futures)
The expectation of a rate change by the RBA is calculated by taking into account the number of days the RBA Target Cash Rate is known versus the number of days in the month that it is unknown ie: the number of days before and after the RBA Board Meeting. By incorporating this time factor into a probability equation the following formula can be used to determine current market expectations on whether or not the RBA will change the Target Cash Rate:
rt * n b + {r(t + 1) p + rt(1 – p)} * na = X
Solve for p, where:
p = probability of rate change
X = current yield on 30 Day Interbank Cash Rate Futures
rt = current known Target Cash Rate (%)
r(t + 1) = expected new Target Cash Rate (%)
nb = fraction of month where target rate is known (ie: before RBA official rate announcement), eg: 2/31 for December 2003
na = fraction of month where target rate is unknown (ie: after RBA official rate announcement), eg: 29/31 for December 2003
Source: ASX
