Rate expectations. What is priced into the interest rate futures market?

It’s sort of funny how the percentage probabilities of interest rate cuts and hikes are defined by market players and watchers.

Now, after the low inflation result for the September quarter, the market has about a 62 per cent chance of a 25 basis point cut priced in for the RBA Board meeting on 3 November. In other words, about 15.5 of the 25 basis points is priced into the market.

Or is that the there is a 31 per cent chance of a 50 basis point cut priced in? The maths working out that number is the same, suffice to say there is no chance the RBA will cut 50.

Or what about an 8 per cent chance of a 100 basis point cut? ROFL! 

Financial maths and presentation is all quirky and fun and sometimes it stretches the truth.

Perhaps when looking at what is priced into the market, it is best just to say that the market is pricing in 15.5 basis points of interest rate cuts for the November meeting of the RBA and leave it at that – even though we all know full-well that the RBA will never cut by 15.5 basis points.