Tuesday, March 02, 2010

Okay, are they going up?

Someone has staked $30,000 on the outcome, due at 2.30 pm AEDT

Millions of Australians stand to suffer if, as expected, the Reserve Bank lifts interest rates by a further 0.25 points this afternoon. But for one big-spending punter the pain will be extreme.

The Sydney man, a Centrebet regular, has staked just short of $30,000 on the Reserve Bank sitting on hands.

If at 2.30 this afternoon the Bank announces its board has decided to keep rates on hold he will walk away with a profit of $21,000. If it puts rates up he will say goodbye to $29,500.

"He is very confident. He placed four separate bets, continuing to pile in as the odds went down," said Centrebet spokesman Neil Evans. "Another punter staked $5000 on there being no change, another $3500."

All up the betting public have staked $45,000 on no-change and only a couple of thousand on a move.

"Its the house against the punters"... said Mr Evans. "I am hoping they don't know something I don't."

Away from the punters there's a good deal of uncertainty.

Centrebet itself was caught short last month, refusing to run a book because it believed a rate rise was a done deal. Mr Evans says it won't make that mistake again.

Of the 18 market economists surveyed by Reuters 12 expect a rate hike and only 6 expect the Bank to stay put.

But they've been unusually reluctant to back their forecasts with money. "It's a case of once-bitten, twice shy," says Macquarie Group interest rate strategist Rory Robertson. "Prices on the futures market imply less than a 50-50 chance of a hike - that's because some players are staying out of the market."

Robertson himself will be very surprised if the Bank doesn't hike rates. "It's already paused for nearly 90 days after hiking three times in just 60 days," he says. "It's time to continue what it calls the process of normalisation."

Reserve Bank governor Glenn Stevens told a parliamentary committeee in February that rates were still
between 0.50 and 1.00 points below their long-term average. "We are still below normal which hitherto has been the appropriate place to be," he said. "There is a little distance to go yet before I think you could characterise the setting of interest rates as normal or average."

Another hike of 0.25 points today would add a further $47 to to the monthly cost of servicing a $300,000 mortgage. The two to four such hikes foreshadowed by the Governor would add between $95 and $190.

The consumer group Choice called on banks to "come out quick" in response.

"Last time after Westpac moved with a big increase we had a rather unedifying standoff of the others waiting seeing who was going to respond first," said spokesman Christopher Zinn.

"The National Australia Bank showed leadership by quickly announcing it would keep its increase to that imposed by the Reserve Bank and gained kudos and business as a result.

"If these guys are such boffins with the figures they should already know excatly what's in their interest and announce it without waiting to see what the others will do."

Economic figures released yesterday marginally added to the case for a rise. Company profits, sales and imports all increased in the December quarter, with profits climbing for the first time in 15 months.

But the jump in imports was narrowly based with 70 per cent of it due to motor vehicles as buyers who could define themselves as businesses rushed to take advantage of the government's tax break for buying cars before it expired at the end of the year.

Published in today's SMH and Age

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