Markets Bet Against RBA Rate Hike Amid Inflation Concerns

Financial markets have lost faith in Reserve Bank of Australia governor Michele Bullock's warnings about raising interest rates to tackle high inflation. Despite both headline and underlying inflation remaining above the RBA's 2-3% target for the 11th straight month, the 30-day interbank futures market now gives a zero percent chance of a hike on Tuesday.

The big four banks also expect a rate cut, rather than a hike. According to Canstar data, 31 lenders have reduced their variable rates since June, with 60% of mortgage providers offering a product starting with 'five'.

EQ Economics managing director Warren Hogan said the market's skepticism towards Bullock's threats is more about traders not taking her seriously than having faith in the RBA. He expects the Reserve Bank to surprise financial markets by raising interest rates on Tuesday.