RBI Holds Repo Rate at 5.25% as Inflation Risks and Global Uncertainty Persist 
Japan Services Producer Prices Rise 3.2% in June, Supporting BOJ Rate Hike Expectations 
Eurozone Bond Yields Fall as Oil Slump Eases Inflation Fears Ahead of Central Bank Meetings 
BOJ Rate Decision in Focus as Sticky Inflation, Weak Yen Shape USD/JPY and Nikkei Outlook 
Fed Holds Interest Rates Steady as Kevin Warsh Says Rising Treasury Yields Tighten Financial Conditions 
Brazil Cuts Selic Rate to 14% as Inflation Eases but Risks Persist 
China Holds Loan Prime Rates Steady for 14th Month as Economic Recovery Remains Uneven 
BOJ Holds Rates at 1% as Inflation Outlook Eases, October Rate Hike Still Possible 
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FOMC increased interest rates in March, June and in September. Increased its forecast from three rate hikes in 2018 to four rate hikes. September decision was unanimous. Current Federal funds rate - 225-250 bps (Note, all calculations are based on data as of 24th December)
- January 2019 meeting: Market is attaching 2.1 percent probability that rates will be at 2.00-2.25 percent, and 97.9 percent probability that rates will be at 2.25-2.50 percent.
- March 2019 meeting: Market is attaching 1.8 percent probability that rates will be at 2.00-2.25 percent, 80.6 percent probability that rates will be at 2.25-2.50 percent, and 17.7 percent probability that rates will be at 2.50-2.75 percent.
- May 2019 meeting: Market is attaching 1.6 percent probability that rates will be at 2.00-2.25 percent, 75.8 percent probability that rates will be at 2.25-2.50 percent, 21.5 percent probability that rates will be at 2.50-2.75 percent, and 1.1 percent probability that rates will be at 2.75-3.00 percent.
- June 2019 meeting: Market is attaching 1.4 percent probability that rates will be at 2.00-2.25 percent, 65.9 percent probability that rates will be at 2.25-2.50 percent, and 28.7 percent probability that rates will be at 2.50-2.75 percent, 3.8 percent probability that rates will be at 2.75-3.00 percent, 0.1 percent probability that rates will be at 3.00-3.25 percent.
- July 2019 meeting: Market is attaching 1.2 percent probability that rates will be at 2.00-2.25 percent, 56 percent probability that rates will be at 2.25-2.50 percent, and 33.8 percent probability that rates will be at 2.50-2.75 percent, 8 percent probability that rates will be at 2.75-3.00 percent, and 1 percent probability that rates will be at 3.00-3.25 percent.
- September 2019 meeting: Market is attaching 7.8 percent probability that rates will be at 2.00-2.25 percent, 36.4 percent probability that rates will be at 2.25-2.50 percent, and 37.3 percent probability that rates will be at 2.50-2.75 percent, 15.2 percent probability that rates will be at 2.75-3.00 percent, 3 percent probability that rates will be at 3.00-3.25 percent, and 0.3 percent probability that rates will be at 3.25-3.50 percent.
- October 2019 meeting: Market is attaching 1.1 percent probability that rates will be at 2.00-2.25 percent, 51.3 percent probability that rates will be at 2.25-2.50 percent, and 35.7 percent probability that rates will be at 2.50-2.75 percent, 10.2 percent probability that rates will be at 2.75-3.00 percent, 1.5 percent probability that rates will be at 3.00-3.25 percent, and 0.1 percent probability that rates will be at 3.25-3.50 percent.
- December 2019 meeting: Market is attaching 5.7 percent probability that rates will be at 2.00-2.25 percent, 49.9 percent probability that rates will be at 2.25-2.50 percent, and 33.4 percent probability that rates will be at 2.50-2.75 percent, 9.4 percent probability that rates will be at 2.75-3.00 percent, 1.4 percent probability that rates will be at 3.00-3.25 percent, and 0.1 percent probability that rates will be at 3.25-3.50 percent.
The probability is suggesting,
- Since our last review a week ago, the probabilities have eased to some extent, despite a hike from the Fed.
- The first rate hike of 2019 is priced in March with 17.7 percent probability, compared to 30.5 percent a week ago.
- The second hike for 2019 is now priced in September with an 18.5 percent probability, same as a week ago.
- The probabilities have changed significantly over the past four weeks. The market has significantly repriced hikes.
- The market is just pricing one rate hike for 2019 with 48.3 percent probability, which means that no hike is priced for 2019 despite Fed forecasting two rate hikes.
