(Bloomberg) -- Australian Retirement Trust, the nation’s second-largest pension fund, says money markets are mistaken in betting the Reserve Bank will resume raising interest rates at its next policy meeting.

The comments follow hotter-than-expected inflation this week that prompted traders to increase wagers the RBA will hike at its Aug. 5-6 meeting. The monthly consumer price indicator accelerated to an annual 4% in May, exceeding economists’ estimate of 3.8%.

Traders are pricing a 50-50 chance the RBA will boost borrowing costs in August and have pushed back the timing of any future easing to the end of next year.

“We don’t think they’re going to raise rates in August,” Andrew Fisher, head of investment strategy at ART, said Thursday in an interview. “From the RBA’s perspective, I think they’d be quite happy for markets to be still thinking the next move is a potential rate rise because they don’t want complacency creeping in.” 

He said the pension fund’s base case is that “rates don’t move for another 12 months and the next move is down.” Fisher said quarterly CPI out on July 31 would be more significant in determining the central bank’s path forward. 

The RBA has raised its cash rate 13 times since May 2022 to 4.35% as it tries to bring inflation back under control. That’s less than many global counterparts — about 1 percentage point below the US — and may be one of the reasons inflation is proving sticky.

Australian policy makers have taken a more cautious approach to tightening as they try to preserve post-pandemic job gains. As a result, the central bank only forecasts inflation will fall back within its 2-3% target in late 2025.

Still, Governor Michele Bullock says the board isn’t ruling anything in or out on policy, which has been interpreted as a willingness to hike again if needed.

“The moderation in inflation in Australia is coming a little bit slower and is a little bit behind the rest of the world,” Fisher said, adding “there’s going to be bumps along the way, but the trend is still very much in the right direction.”

ART still expects a soft economic landing in Australia and globally. 

“The landing here will be delayed and we’ll probably one of the last major developed markets to cut rates, but that’s probably reasonable given we didn’t raise them anywhere near as far,” Fisher said. 

ART, with A$285 billion ($190 billion) under management, has “elevated diversification in both directions” Fisher said, adding that sovereign government bonds were about 3% overweight from the fund’s benchmark allocation. He said ART saw more opportunities in unlisted markets, including private credit and industrial property. 

Australia’s $A3.9 trillion pension industry — known locally as superannuation — is expected to finish the financial year with returns greater than 9%, according to an estimate by research firm Chant West.

ART’s growth investment option is expected to return 11-11.5% for the financial year when numbers are finalized over the weekend, while the balanced option — where the bulk of members keep their retirement savings — is tipped to return just under 10%. 

Earlier this week, ART confirmed it was shifting the default option for its younger members to a higher growth fund from the traditional balanced option as it chases higher returns. 

--With assistance from Matthew Burgess.

(Updates with soft landing comments in 10th-11th paragraphs. An earlier version of this story was corrected.)

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