Odds of a Melbourne Cup rate change

The Reserve Bank (RBA) hasn’t made a Melbourne Cup rate change for the past few years – so what are the odds of a rate change this year?

The Melbourne Cup is the race that stops a nation – but another event on the first Tuesday of most months that at least causes some people to pause for thought is the Monetary Policy Meeting of the Reserve Bank Board – otherwise known as the meeting at which official cash rate decisions are made.

So what are the odds of a cut in official cash rate on Melbourne Cup day?

When it comes to making a rate change decision on Melbourne Cup day, the Reserve Bank (RBA) has not displayed any form over the past few years. In fact the RBA has sat quietly on its hands for the past four Novembers (2015, 2014, 2013 and 2012). Prior to that though, Australia saw a six-year streak of November cash rate movements, with:

Month/year Official cash rate movement
November 2011 25 basis point drop
November 2010 25 basis point increase
November 2009 25 basis point increase
November 2008 75 basis point drop
November 2007 25 basis point increase
November 2006 25 basis point increase

Source: RBA

So chances of a rate cut this Melbourne Cup?

There are some pundits predicting a rate movement in November. For example…

However the recently-released minutes of the Monetary Policy Meeting of the Reserve Bank Board, under new Governor and Chair Philip Lowe, indicated that while there was no particularly good news for the economy, there was nothing outstandingly bad, either. As such, as wait and see bias is the most likely.

If economists are wait and see or on the fence, betting agencies (the ultimate experts in odds) seem to be suggesting that no change is the most likely scenario. Among many honours, legendary gelding Phar Lap holds the record as the shortest-priced winner of the Melbourne Cup, at odds of $1.73 in 1930. In comparison, the current odds of the official cash rate remaining on hold from now until at least December are quoted at time of writing by Sportsbet at $1.02. They’re paying $11 on a decrease of up to 0.25% and $21 on an increase of up to 0.25%.

Of course, choosing a Melbourne Cup winner is a one-in-twenty-four proposition, compared to a one-in-three chance on the official cash rate.

Plenty of low rate home loans

Sure it’s fun to have a bet on the Melbourne Cup – but if you’re hoping to give your bank account a boost by doing it, you might be better off looking at your home loan instead; it’s akin to betting on a sure thing.

Currently on Canstar’s database there is a more than two percent difference between the highest and lowest advertised variable interest rates being offered. You can compare current mortgage rates here. For a typical mortgage holder that type of difference can translate into hundreds of dollars of savings each year. So perhaps, once the fun of the Melbourne Cup  is over, put aside the form guide and spend a lunch break looking for a better-value home loan. It’s likely to be a much better return on investment.

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