Over the last few months, the Reserve Bank of Australia (RBA) board meetings have not provided any real surprises, but coming up next week is the most interesting meeting in a while. The cash rate is currently 4.5%, but there have been enough noises from the bank’s governor and other RBA board members about the strength of the Australian economy, that consensus is leaning towards a rate hike next week. Financial market pricing is currently indicating a 62% probability of a 0.25% rate rise. Interestingly, the online betting agency Sportsbet offers bets on possible RBA actions (somewhat controversially) and its odds are indicating an even higher chance of a rate hike.
|Reserve Bank move||Payout||Probability|
|Rise Between 0.01 and 0.25%||1.33||75%|
|Stay The Same||3.40||29%|
|Rise Between 0.26 and 0.5%||4.50||22%|
|Rise 0.51% or More||21.00||5%|
My own contacts in the markets (you know who you are) tell me that the HSBC economist Paul Bloxham, who recently joined the firm after 12 years at the RBA, is calling for no move until November. So, perhaps a hike is not as sure a thing as Sportsbet punters believe.
What do you think? Here is another chance to pit the collective wisdom of Stubborn Mule readers against both the financial markets and online gamblers!
If you need more information to help you make up your mind, you could read Christopher Joye’s arguments as to why the RBA should just be getting a move on in the fight against inflation. It might help tame property prices in the process. Then again, perhaps not.
UPDATE: there was an error with the calculation of probabilities, which has been corrected. By the way, the fact that the probabilities add up to well over 100% gives an insight into Sportzbet’s profit margin, which looks to be around 25%.
FURTHER UPDATE: Sportsbet’s pages of financial markets bets are down…I wonder if ASIC are on to them now.