Markets react to inflation data
I had a look through the mixed reaction to yesterday's inflation data here.
Currency markets and futures markets generally took the somewhat higher than expected core inflation readings to mean that interest rate cuts may be deferred or pushed out to March or beyond.
By the close of trade yesterday February cash rate futures contracts were trading at 97.535, thus implying only a fairly remote one-in-six chance of a cut in interest rates at next week's meeting to 2.25 percent.
The implied yield curve remained inverted, essentially pricing in two cuts by the end of 2016.
It's not what the Reserve Bank was planning necessarily, but with interest rates globally cascading lower - a trend exacerbated by lower oil prices - Australia's 2.50 percent interest rate is comparatively high for the industrialised world economies.
Deflation is increasingly being seen across the world as a bigger risk than high inflation.
All clear then?
Weeell, not quite...
February rate cut "almost a certainty"
The Reserve Bank is clearly very keen on issuing forward guidance to markets - and when the Board met way back in the first week of December, the official line was still that "the most prudent course is likely to be a period of stability in interest rates".
Step forward the Reserve's alleged mouthpiece Terry McCrann to deliver a series of extraordinarily specific reasons as to why interest rates will be cut, and "almost certainly" as soon as February.
In short, the RBA was not too keen to cut interest rates once, but now that it sees "two to four" interest rate cuts as potentially necessary, Stevens will be moved into action.
"After 18 months of keeping its official interest rate unchanged, the Reserve Bank will almost certainly cut the rate at its first meeting back for the year next Tuesday.