Rate cut a safe cup day bet?

by AB03 Sep 2015
An interest rate cut may be the best way to make some money on Melbourne Cup Day, with a number of financial commentators predicting the Reserve Bank will lower the official cash interest rate on the first Tuesday of November.

At their meeting yesterday, the RBA board left the cash rate at 2%, where it has been for the last four months, with many believing the central bank is still assessing the impacts of rate cuts in February and May.

But some experts believe the central bank may be forced to act next month as economic growth continues at a sluggish pace.

If that’s the case, then the RBA would almost be required to make a move in November according to Domain Group senior economist Andrew Wilson.

That’s because there’s no real point in acting in December, and there’s no decision in January,” said Dr Wilson told Fairfax Media outlets.  

“To act in November means there’s still some impetus for interest rate cuts to be effective in that year, with a spring market in full swing.”

AMP chief economist Shane Oliver also told Fairfax that there was a good chance of a rate cut on Cup Day.

“On balance, the RBA will be forced to cut interest rates again. The reason is the economy is continuing to run at a very sub-par pace,” he said.

“I think if it’s going to come, it will probably be November.”

Prior to the RBA board metting this week, RateCity financial analyst Peter Arnold said recent economic upheaval across the globe had increased the chance of a rate cut before the end of the year and predicted the cash rate will be below 2% by the time the winner of the Melbourne Cup is past the finishing post.

"With the events of the past fortnight – the economic situation in China and how that had fed into the Australian share market’s mini crash – the chance of a cash rate cut has increased significantly,” Arnold said.

“I think we’ll get a cut this year and I’m betting on a cut by the time Melbourne Cup runs in November,” he said.
 

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