John Symond betting on Melbourne Cup Day rate cut

Aussie Home Loans founder John Symond expects the RBA to cut interest rates on November 1 at its Melbourne Cup Day meeting.

“The next rate cut is not far around the corner. The Reserve Bank should, and I think will, cut interest rates in November,” Symond has told Channel Seven’s Sunrise program today.

Symond says the RBA is “finally waking up that our economy is stalling outside the mining sector”.

“I think they should have cut interest rates by a ¼% in October to give consumers some reason to go out there and start buying and helping retailers and manufacturers.”

A similar sentiment was expressed by CommSec economist Craig James, who says the odds for a Melbourne Cup day rate cut are “narrowing”.

James places importance on the next set of quarterly inflation figures due out on October 26.

“If inflation figures this month are on the low side – and I expect few retailers would be putting up prices in this environment … the RBA will give serious thought to a rate cut,” he says.

James says another factor is the Aussie dollar. If it continues to fall further, it could provide stimulus to the economy, which could push up prices.

The low dollar has already had an impact on petrol prices, which hit a four-month high last week to around $1.44 a litre.

Mark Bouris, chairman of financial services group Yellow Brick Road, is also calling for a November rate cut and has been calling for one since the beginning of June.

Yellow Brick Road is campaigning for a rate cut as part of its “RBA Appeal” - an initiative “created to educate the Reserve Bank of Australia on the plights middle Australians are facing under the threat of higher interest rates”.

John Mcgrath, CEO of McGrath Real Estate, does not like to speculate on where interest rates are going, but did comment in his Spring Market Review that interest rates are a key factor in market confidence.

“A key factor is interest rates. If the RBA moves to decrease rates further, this will supersede many macro-economic issues for the average buyer. Buyers have been concerned about interest rates moving upwards and we really need to see a rate reduction that puts the steep rises of the past 18 months behind us. With three-year fixed rates now below the variable, this indicates the banks’ belief that interest rates are on the way down,” he says.

Expectations of a rate cut in November are also growing among the major banks.

ANZ economists Warren Hogan and Katie Dean say the RBA’s monetary policy statement released yesterday following the decision to keep rates at 4.75% “presents a clear shift of tone”.

“The RBA has opened the door for a modest easing of policy, lowering both its short-term growth and 2012-13 inflation forecasts for Australia,” the economists say.

“A 25bps interest rate cut in November, followed by another 25bps of easing in February, now looks increasingly likely. This will be contingent on a modest core inflation outcome for the third quarter. ANZ is forecasting core inflation to rise 0.6% in the third quarter, opening the way for a rate cut in November.”

To get the rate cut over the line, Hogan and Dean believe three conditions will need to be met: namely confirmation that inflation is under control, further evidence that the labour market has softened and a further deterioration in global conditions.

CBA economist James McIntyre says the RBA statement represents a shift further away from a tightening bias, driven by the global uncertainty, but the bank remains “not yet convinced of an RBA cut”.

“The board noted that outside the confidence measures there was little evidence yet of the effects of recent turbulence on economic activity.  The expected weaker growth outcomes remain just that, an expectation.  For now the RBA board's weighing of the inflation question remains unanswered.  But, Europe has not yet reached its endgame either.  Either way, answers should arrive in the near term,” he says.

But McIntyre says a rate hike is now “clearly out of the question until a resolution in Europe is found and global uncertainties ease”.