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Markets pricing terminal RBA rate of 0.4% - Westpac

Markets are pricing a terminal Reserve Bank of Australia (RBA) rate at 0.4%, according to Westpac analysts. 

The terminal rate is the natural or neutral interest rate that is consistent with full employment and capacity utilization and stable prices.  

Currently, the official rate stands at 0.75%. So, markets are essentially expecting rates to drop by 35 basis points. 

The RBA, however, is unlikely to move the needle on rates next week. The investors are currently pricing just a 10 percent probability of a rate cut on Feb. 4. 

The odds dropped sharply from above 60% last week following the release of the upbeat Aussie employment data.

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