Interest rates: Even the experts are lost

Economists are split as to whether tomorrow's interest rate decision will leave more money in your pocket. Picture: ThinkStock Source: news.com.au

HOMEOWNERS may as well flip a coin if they're trying to predict the outcome of tomorrow's interest rate decision.

Economists are largely split on whether or not the Reserve Bank of Australia will cut interest rates tomorrow.

Half of the economists surveyed by AAP expected a rate cut from the current 4.5 per cent and the other half said there would be no move.

Today’s modest rise on the local sharemarket could signal that rates will stay on hold tomorrow.

But Fairfax newspapers reporting that some insiders believed even RBA board members had not yet made their decision and would be keeping a close eye on today’s data.

At 12.51pm AEDT the benchmark S&P/ASX200 index was up 24.097 points, or 0.56 per cent, at 4,312.1, while the broader All Ordinaries index gained 23.6 points, or 0.52 per cent, to 4,369.9.

But the slight drop in inflation figures, released today, could point to an interest rate cut. According to the TD Securities-Melbourne Institute, inflation fell 0.1 per cent in November.

Rate City CEO Damian Smith said he expected an interest rate cut of 25 basis points at some point over the next three months.

“Whether it’s tomorrow or February it’s a good bet one of those decisions will be a rate cut,” Mr Smith said.

“I would be surprised if in February we were in the situation where rates had stayed on hold.”

The RBA does not hold a board meeting in January.

A 25 basis point rate cut would slash the average $284,000 mortgage by $45 a month.

Punters are backing a cut in the official cash rate tomorrow, with Centrebet odds narrowing to $1.55 from $2.10 in the past four days.

Odds on a 50 basis point rate cut also narrowed to $7 from $8.50.

While one punter gambled $10,000 at $1.75 on no change, its odds have blown out to $2.47.

"Punters now believe the Reserve will announce back-to-back cuts," Centrebet's Neil Evans said, adding doing so would allow room for pause in the first half of 2012.

The central bank cut the cash rate by 25 basis points to 4.75 per cent in November, the first reduction in two-and-a-half years.

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