It wasn’t a good day for favourites: the heavily-backed Americain and Dunaden disappointed Melbourne Cup punters and the Reserve Bank of Australia (RBA) dashed hopes for an interest rate cut.
The RBA held the cash rate at 3.25 per cent at its November board meeting on Tuesday, citing higher-than-expected inflation and signs of stabilisation in the global economy.
It was the first time since 2006 that the RBA had not moved the cash rate on Melbourne Cup day.
Markets had put the chances of a cut to the cash rate at Tuesday’s meeting at 50-50, though economists took a more optimistic view, with 12 of the 15 economists surveyed by AAP predicting a cut.
RBC fixed income and currency strategist Michael Turner said the decision not to adjust the cash rate was surprising.
“We thought the odds were in favour of a cut,” he said.
He said official data last month showing underlying inflation of 2.5 per cent in the year to September – in the middle of the RBA’s target range of two to three per cent, meant the bank preferred to hold for now.
The Australian Bureau of Statistics (ABS) figures showed consumer prices jumped 1.4 per cent in the September quarter.
In a statement accompanying the decision, RBA governor Glenn Stevens said the higher-than-expected rises in consumer prices, along with positive signs for the global economy from China and the US, had persuaded the bank to hold.
“At today’s meeting, with prices data slightly higher than expected and recent information on the world economy slightly more positive, the board judged that the stance of monetary policy was appropriate for the time being,” he said.
Meanwhile, he said commodity prices remained lower relative to the start of the year but the terms of trade were likely to remain high compared to historic levels.
Unions and business groups criticised the RBA’s decision.
National Retail Association chief executive Trevor Evans said retailers were counting on a rate cut to boost demand in the lead up to Christmas and called on the RBA to cut next month.
“We believe there is still time for the RBA to deliver a Christmas gift to business owners, workers and consumers, by cutting rates in December,” chief executive Trevor Evans said.
CFMEU national secretary Michael O’Connor said the decision was “completely baffling”.
“The case for a Cup day cut from the Reserve Bank could not have been clearer,” he said.
Futures markets are now pricing in a quarter per cent cut in either December or February.
But HSBC Australia chief economist Paul Bloxham said Tuesday’s statement suggested the RBA may not be ken to cut much further.
“We could be nearing the end of this easing cycle,” he said.
The RBA has cut the cash rate 1.5 percentage points since November 2011, with its most recent reduction of a quarter of a percentage point in October 2012.
But there was some positive news for homeowners on Tuesday, with ABS figures showing house prices rose 0.3 per cent in the year to September, the first annual rise since March 2011.
