Melbourne Cup Day is often associated with betting odds, but this November, the stakes are significantly higher beyond the racetrack. Financial pundits and homeowners are poised on the edge of their seats, not for the thunder of hooves, but for the Reserve Bank of Australia’s (RBA) announcement which could see interest rates soar to heights not witnessed since the days when ‘Someone Like You’ by Adele topped the charts.
A recent survey amongst economists presents a nearly unanimous view, with 90% (34 out of 39) bracing for a 25 basis points ascension to a sturdy 4.35%, a rate unseen since the pre-Tinder era of 2011. This jump is not a spur of the moment dash to the finish line; rather, it’s the culmination of persistent inflationary pressures, with the Q3 inflation jolt serving as a stark reminder of the monetary marathon the RBA is running to keep the economy in check.
The Big Four banks are at odds, like spectators betting on different horses, with ANZ, CBA, and Westpac betting on the RBA holding the reins tight, but NAB expects a nudge upwards. The diverging forecasts add an intriguing layer of suspense to the forthcoming RBA decision, reminiscent of the tension before a photo finish.
In the financial world, history doesn’t repeat itself, but it often rhymes. Casting a glance back to November 2011, the RBA, in a contrasting scenario, nudged the rates down by 25 basis points to 4.5%, motivated by a global growth spurt’s slow trot and a lofty Aussie dollar that reined in inflation. That move was a shift towards a neutral policy, targeting the sweet spot of sustainable growth and inflation wrangled within the 2-3% corral.
Fast-forward to today’s gallop, and it’s a starkly different racecourse. With Australia’s gross debt thundering to $906.6 billion and the net debt hurdle set at $565.6 billion as of March 2023, the track looks more challenging. The government’s wager is on a gross debt sprint to $1.067 trillion by the 2026-27 finish line, pushing net debt to a panting $1.4 trillion across all government levels.
Casting shadows on the economic track is the potential housing market stumble, with Tarric Brooker, a journalist and analyst, drawing parallels to February 2019’s scenario when around 3% of mortgage holders found themselves in negative equity. If the housing prices were to trip by 29% from their peak, we could see an uneasy 4% of mortgage holders with their investments submerged underwater.
So, as the nation halts for the thundering climax of the Melbourne Cup, there’s a parallel anticipation building up in the economic grandstands. Will the RBA raise the stakes or hold the bet? Either way, the impact will ripple through mortgages, markets, and the broader economy, affecting the pockets of millions of Australians.
It’s more than just a horse race this year—it’s a gamble on financial stability and growth. As the nation’s bettors don their hats and suits for a day at the races, one can’t help but wonder if the RBA will follow the crowd’s anticipation or if there’s a wildcard yet to be played. One thing is certain: come Cup Day, all bets are off.
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On Melbourne Cup Day, all eyes are on the Reserve Bank of Australia's interest rate decision, with a likely increase to 4.35% amid economic challenges & potential housing market risks. 🏇🏦📈 #TheIndianSun #MelbourneCuphttps://t.co/0ocPuYrOpY
— The Indian Sun (@The_Indian_Sun) November 6, 2023