Cup Day Rate Cut Expectations Fall

Expectations of the Reserve Bank of Australia (RBA) cutting official interest rates again on Melbourne Cup have fallen, according to a survey by leading mortgage broker Loan Market.

Loan Market Corporate Spokesman Paul Smith said a survey of the company’s mortgage brokers found 57 per cent predict the RBA will maintain the cash rate at its present level of 3.25 per cent at the November 6 board meeting.

Mr Smith said the central bank’s decision to reduce the cash rate 25 basis points at its October meeting and a surprise rise in inflation during the September quarter had lowered expectations of a Melbourne Cup day windfall for mortgage holders.

He said 43 per cent of the 225 broker respondents thought there could be another quarter percentage point cut on Tuesday, while no one surveyed believed there would be a larger reduction by the RBA.

“The RBA has form on the board for taking action on the first Tuesday in November having moved rates on Cup day every year since 2006,” he said.

“But last week’s inflation data may see the central bank adopt a wait and see approach knowing they can still take some action in December.”

Mr Smith said that if the RBA does reduce rates on Melbourne Cup day or at its next meeting in December, mortgage holders will benefit from the lower rates but they may see other costs rising.

“If the cash rate is dropped to record lows there could easily be a spike in inflation which could result in common costs-of-living going up rapidly, and that’s something the RBA will no doubt be considering carefully,” he said.

Survey Results:

Do you think the RBA will lower rates on Melbourne Cup Day?

a) No movement                                   57%

b) Cut by 25 bps                                    43%

c) Cut by 50 bps or more                       0%