Five in a row precedent for Cup Day interest rate movement: AMP's Shane Oliver

Interest rates have moved on the last five Melbourne Cup Days, mostly upwards, once downwards, and AMP Capital chief economist Shane Oliver expects the RBA to cut the official cash rate by 0.25%, taking it to 4.5%, when it meets on Tuesday.

“Of course, a cut is not assured as the RBA may take the view that the moves in Europe have reduced the risks to the global outlook, so as such we attach a 60% probability to a cut occurring,” Oliver notes.

“However, the case to cut is very strong.

“Despite the European debt rescue plan, the global growth outlook is still much weaker than when interest rates were raised a year ago to 4.75%.

“Likewise domestic demand has been weaker than expected, with unemployment now drifting higher.

“And the much-anticipated September quarter inflation figures have confirmed that the inflation outlook is far more benign than the RBA was assuming a few months ago,” Oliver says.

“Current settings for interest rates – which assumed much stronger global and Australian growth and a worsening profile for underlying inflation – are too high.

“So if it’s not on Tuesday we would anticipate a cut in December,” Oliver suggests.