50/50 chance of a Melbourne Cup day interest rate cut

A MELBOURNE Cup Day interest rate cut will be decided in a photo finish today but economists remain divided on whether the cash rate will fall before Christmas.

Ma's hands wrapped around a mode of a house representing home ownership or home insurance

A MELBOURNE Cup Day interest cut will be a decided in a photo finish today as economists remain divided on whether the cash rate will fall in time for Christmas.

Smaller lenders are continuing to drop their variable rate deals at the same time the big four banks have all jacked up the variable rate loan offers in an out-of-cycle move to raise capital ahead of the next financial year.

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But recent rate jumps by the big banks, low inflation and struggling consumer confidence could be the key drivers that push the Reserve Bank of Australia board to drop the cash rate to a record low 1.75 per cent when it meets today, experts say.

Ready for a fall ... HSBC chief economist Paul Bloxham expects a rate fall when the Reserve Bank of Australia board meets on Melbourne Cup Day

HSBC chief economist Paul Bloxham said all the signs are leading towards a cut — the first Melbourne Cup Day rate cut since 2011.

“A cut is more likely than a hold and it’s the path of least regret for the RBA to deliver a bit more support for the economy,’’ he said.

“With the big banks having just lifted rates, it’s another reason for the RBA to deliver a cut.”

Inflation rose just 0.5 per cent in the September quarter — 0.2 percentage points less than expected which fuelled predictions of a third rate cut this year.

On Friday, the Australian Securities Exchange’s RBA Ratetracker was almost an even split of whether the cash rate would drop to 1.75 per cent.

1300homeloan director John Kolenda is also tipping the RBA to cut rates this month in time to create more spending ahead this festive season.

“If they’re going to do anything they will do it this month because it will provide stimulus leading up to Christmas,’’ he said.

“We’ve seen the banks increase rates and that’s not helping consumer confidence or the market so I think we need the RBA to be decisive and reduce rates to get the economy back on its feet.”

All signs point to yes ... Smaller lenders are continuing to drop their home loan variable rate offers

Financial comparison website Canstar has found on an average $300,000 25-year loan, the average standard variable rate is 4.83 per cent and the monthly repayments are $1724.

On a three-year fixed mortgage the average rate is 4.53 per cent and the monthly repayments are

$1673.
The average standard variable rate of the big four banks is 5.61 per cent which factors in the rate hikes latest this month.

Lenders dropping variable rates in recent weeks

— Auswide Bank, freedom package special discount variable offer dropped by 21 basis points to 3.98 per cent.

— Bank Australia dropped its basic variable rate by 12 basis points to 3.98 per cent.

— Yellow Brick Road dropped its rate Smasher variable loan deal by 15 basis points to 3.91 per cent.

Source: Canstar.com.au

Originally published as 50/50 chance of a Melbourne Cup day interest rate cut