The May board meeting of the RBA is historically one of the four months of the year in which the likelihood of a rate change is highest. February, May, August and November happen to be the four months of the year in which previous rate changes have typically occurred.
At this latest board meeting, the RBA decided to leave Australia’s overnight cash rate unchanged at 1.50%. For most, if not all of the thirty board meetings held since the rate was last changed in August 2016, describing such a decision “as expected” was par for the course.
However, in the lead up to this latest meeting, 14 out of 26 economists in a Bloomberg poll had expected the RBA to cut rates by 25bps. Cash futures contracts at the time implied traders were not as confident of a cut; May contracts implied a move by the RBA was viewed as a realistic chance at 38%.
So, once the decision to leave the cash rate unchanged was announced, bond yields moved quickly and significantly. By the end of the day, the yield on 3-year ACGBs had jumped 8bps to 1.31%, 10-year yields had gained 5bps to 1.80% and 20-year yields were 4bps higher at 2.22%.