Another 125 basis points of RBA relief before year's end?

That's what the overnight indexed swap (OIS) market is currently pricing. Admittedly, this pricing reflects the average of a range of different probabilities, and reflects a lot of extreme event risk (ie, the average of the future paths the world might conceivably take is quite different from the middle, or median, path). Aussie bond prices are soaring while Aussie equities are getting taken to the cleaners. Aussie shares' total returns are negative over the last two years. The OIS market is pricing a substantial chance of another double cut in June followed by much more as the year passes. It seems hard to believe, but it is certainly a possibility. The Aussie dollar is currently about 11% lower than its 2011 peak (having hit 97 US cents today), which is succour for exporters and import-competing industries like tourism. (Not such good news for our tradeables inflation.) And banks are slashing the price of fixed-rate home loans. So if the markets prove right, the economy is about the be the beneficiary of an enormous amount of stimulus. It also looks increasingly like the euro-zone will respond to the current difficulties with the mother-of-all liquidity injections with austerity on the political nose. It will be fascinating to see what growth the global economy delivers in 2012.