The market reaction to the central bank liquidity and banking measures saw the money market scale back the chances for a December interest rate cut but a 25bp cut is still fully priced in after the disappointing retail sales and building approvals numbers this morning.
The betting markets, on the other hand, have not moved much in the last day or so with the betting favouring a 25bp rate cut next week. No change is the second favourite and the betting markets are pricing in the very real possibility of a 50bp rate cut. Rate hikes are triple digit odds.
The table below sets out the latest odds:
| | Sportsbet | TAB | Centrebet |
| Steady | $2.50 | $2.50 | na |
| 25 bp cut | $1.65 | $1.65 | na |
| 50 bp cut | $5.00 | na | na |
| 50bp cut or more | na | $7.50 | na |
| 75 bp cut or more | $15.00 | na | na |
These odds have changed a lot over recent weeks with a substantial shortening in the 25 and 50 bp rate cut scenarios and a blow out in no change. It took a while for the betting markets to reflect the reality of softer domestic growth, tight fiscal settings, global market ructions and a disinflation momentum that risks seeing inflation fall below the bottom of the RBA target band during 2012.
The 25 cut offers a potential 65% tax free return for a 5 day investment. Believers in the mining boom and residual inflation concerns being on the minds of the RBA can get a whopping 150% tax free return if they are correct and the RBA remains on hold.
All eyes will be on market conditions and global data over the next few days – and the TD-MI Monthly Inflation Gauge locally for final clues on what the RBA will do next Tuesday.
Please note, these views are my own and all comments are not investment advice.
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