Australia's central bank may surprise traders with interest rate

At 3 of its 10 meetings in 2022, the Reserve Bank of Australia made rate decisions that surprised market participants. Traders are now cautious and trying to anticipate all possible rate levels before Tuesday's final decision.

Swaps tied to the December 6 meeting fell to 2.94% this week, just 12 basis points above the actual monetary rate of 2.82%. And even with the contracts at 3% on Friday, traders are warning that there is a possibility that the Reserve Bank will give up a 15 basis point rate hike instead of the standard quarter-point increase.

This would also come as another shock to economists, given that the vast majority of them had predicted a quarter-point rate hike. RBA President Philip Lowe has regularly misled market participants since the current tightening cycle began in May.

In May, he raised the rate by a quarter point to 0.35%, while the market was expecting a 15 basis point hike. In June, Lowe repeated this unexpected rate hike, but by half a point at once. Then in October he lowered the rate to 0.25%, citing concerns that the sharp tightening already conducted by the RBA had not yet affected the economy.