What are the chances of an interest rate cut Tomorrow?

The markets are fairly certain about what will happen tomorrow…

| More on:
Percentage sign with a rising zig zaggy arrow representing rising interest rates.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's been an absolute car crash of a kick-off to the trading week so far this Monday. The S&P/ASX 200 Index (ASX: XJO) closed at 7,982 points on Friday afternoon. But at the time of writing, the index has plunged down by a horrid 1.6% to just over 7,850 points. No doubt some investors will be hoping that the Reserve Bank of Australia (RBA) rides in tomorrow to save the day with an interest rate cut.

Yep, tomorrow is the first Tuesday in April. That means that the RBA will be meeting in Sydney's Martin Place to decide whether to leave interest rates unchanged, or else to give Australians another interest rate cut.

If the RBA does deliver an interest rate cut, it would be the first since its blockbuster decision in February to lower the cash rate by 25 basis points to 4.1%. That was the first reduction to the cash rate Australians had seen in more than four years. The RBA had presided over one of the steepest rate-hiking cycles in history when it increased the cash rate 12 times between May 2022 and November 2023. That saw the cash rate climb from a pandemic-induced record low of 0.1% to 4.35%.

A reduction to under 4% would be a big deal for the markets, and most Australians.

Interest rate cuts are generally viewed as a tailwind for the share market. Reducing the returns of 'safe' assets like government bonds and cash savings, which is what an interest rate cut does, increases the appeal of 'riskier' assets like ASX shares. Rate cuts also have a stimulatory economic effect, as they immediately put more cash in the pockets of any mortgage-owning Australian.

Will the RBA cut interest rates tomorrow?

So investors would no doubt appreciate a shot in the arm tomorrow when the RBA board meets. But just how likely is a move tomorrow?

Well, we won't know for sure until the RBA releases its decision tomorrow afternoon, of course. However, we can look at what the money markets are pricing in as the most likely outcome today.

The ASX itself runs an 'RBA rate tracker'. This quantifies the movements of the bond markets to determine what kind of likelihood traders are pricing in for a move in the cash rate.

To kick things off, we can almost certainly rule out an interest rate rise, which traders are pricing in at a near-zero chance.

However, as it currently stands, it looks as though the consensus is that the RBA will stay its hand at tomorrow's meeting.

As of 28 March, the money markets were pricing in just an 8% chance that the RBA will reduce the cash rate at tomorrow's meeting. That leaves a 92% chance that rates will remain unchanged.

What's also of interest is that traders have been reducing their bets on a rate cut over the past two weeks or so. Back on 17 March, the markets were pricing in a 12% chance of a rate cut. But that had subsequently fallen to a 10% chance by 21 March, and down to 8% by 24 March, where it remains today.

So, if the betting markets mean anything to you, don't count on a rate cut tomorrow. The ASX might have to rely on something else to get it out of the funk it has started the week off in.

Should you invest $1,000 in Biontech Se right now?

Before you buy Biontech Se shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Biontech Se wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Economy

Woman with an amazed expression has her hands and arms out with a laptop in front of her.
Economy

How likely is NAB's 50 basis point rate cut forecast?

The RBA will next meet on 19-20 May.

Read more »

A happy shopper lifts her bags high, indicating a rising share price in ASX retail companies
Economy

The latest retail sales data is out: What did it reveal about the Australian economy?

Retail sales data is a closely watched metric by investors and economists.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Economy

1 month on from Trump's Liberation Day. What's the latest with Trump's tariffs?

A lot has changed in one month.

Read more »

Man putting a ballot into a voting box in Australia.
Economy

Federal Election Eve: How does Macquarie expect markets to respond to the result?

Will the market go on a tear like the recent US Presidential election?

Read more »

A worried woman looks at her phone and laptop, seeking ways to tighten her belt against inflation.
Economy

US economy reports negative GDP growth in Q1. What does this mean?

The US is now halfway to a recession.

Read more »

A young man goes over his finances and investment portfolio at home.
Economy

Is Australia's AAA credit rating at risk?

S&P Global Ratings issued a statement earlier this week.

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Share Market News

What the latest inflation data means for ASX 200 investors and RBA interest rate cuts

Will ASX 200 investors enjoy a May RBA interest rate cut following the latest inflation print?

Read more »

Magnifying glass on a rising interest rate graph.
Economy

How likely is a 50 basis point interest rate cut next month?

What are experts tipping for next month's RBA meeting?

Read more »