The rate that stops a nation
Article by Mozo
Whilst the nation’s Southern capital enjoys a day off next Tuesday, the team at No. 1 Martin Place will have to keep the bubbly on ice until 2:30PM, with what is set to be the most interesting rates decision of 2011.
The Reserve Bank, and in particular Governor Glenn Stevens, have a long history of Cup Day rate shenanigans. Mr Stevens has overseen a rate change on the first Tuesday in November, every single year since taking the reins in September, 2006. Take that Makybe Diva!
What do the numbers say?
Inflation figures released on Wednesday were touted as being the key factor in the RBA’s decision, and despite the ‘year-to’ inflation rate still sitting at 3.5%, it was the unexpectedly low underlying inflation that had the pundits abuzz. At only 0.3% for the quarter (the lowest number since the RBA began monitoring this figure in 2002), the country’s economists had a rate cut an 80% chance, whilst Fairfax’s Michael Pascoe asserted a cut would be ‘pretty much guaranteed’.
Not to be outdone, the ASX futures markets expectation of a rate cut was at 100% after the release of inflation data.
Not by a long shot. The Euro debt-deal clinched yesterday has seen world markets return to form, quickly forgetting the doom and gloom of recent months. Since then, odds on rates staying put have shortened considerably.
HSBC economist Paul Bloxham pointed to core inflation sitting bang in the middle of the target band of 2-3%, the almost full employment rate, and the RBA’s history of long periods on hold, rather than fine-tuning.
What will the banks do?
The million-dollar question. It was precisely a year ago that Commonwealth Bank famously lifted their variable rates by almost twice the RBA’s increase. Could it work in reverse? We’ll soon find out.
Check back at 2:30PM on Tuesday for the decision.