Tuesday week is a golden day for those who love to back the odds.
The punters are furiously trying to deduce the winning horse in Tuesday’s Melbourne Cup, while economic pundits are jockeying for position to predict the possibility of a rate hike as the Reserve Bank holds its monthly meeting and as always, plays its cards close.
Inflation figures out on Wednesday were a lower-than-expected annualised 2.7%, so it seems unlikely the Australian Reserve Bank will increase rates above the current 4.5%. This will give borrowers a happy reprieve, for now at least.
The strong Aussie dollar and good harvests are translating into cheaper imports and lower cost fresh produce. This leads us to ask - what prices are actually rising? The answer is anything but shocking: electricity. It rose by 7% in the past quarter, 12% over the year and is likely to keep increasing.
Joe Hockey spoke of the Reserve Bank using interest rates as a lever to calibrate economic growth. How so? Well, in short the role of interest rates in Australia is no different from other Western economies – the cash rate is the price of money, and changing the rate affects the supply and demand of money. Using interest rates to regulate economic growth is called monetary policy.
When the Reserve Bank meets every month it considers many different economic indicators to work out when and to what extent it should use this lever: employment (which is up), Consumer price index (down), lending growth (slowing) and the global economic backdrop (risk of a slow down remains). All point towards the rate remaining at 4.5% when the board meets on 2 November.
So looking forward to Tuesday: the money seems to be on a constant interest rate at least for another month. It isn’t as easy to predict first over the line on the racetrack - or So You Think?
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