Tuesday 4 November 2008 is shaping up to be a historical day:  

  • The US Presidential Election will either see the first African-American President (Obama) or the first female Vice-President (Palin) together with the eldest first-term President (McCain).
  • The Reserve Bank of Australia will meet and, all things being equal, will almost certainly cut interest rates.
  • It’s Melbourne Cup flutter fever throughout Australia. 

You don’t need to be a gambler to have an opinion on the outcome of at least two out of three events, and broadly speaking one could achieve a hat trick by betting that “a horse” will win the Emirates Cup in Melbourne. 

Where the interesting debate lies is in the margin of change. If Obama wins, how many Electoral College Votes will it be by? And, should the RBA cut interest rates, how much will the reduction be?

Let’s hone in on the Australian interest rate debate. Current factors influencing the RBA are:

  • The Australian dollar is weak, hovering around US60 cents to the Australian dollar and having fallen 40% since July;
  • Inflation is high (around 5%);
  • Consumer and business confidence is lowering;
  • Global growth prospects are poor;
  • World oil and commodity prices are becoming more sensible;
  • Unemployment is marginally on the increase;
  • The government’s intervention by guaranteeing some deposits has not created the market stability intended.  

So, given that it’s pretty much a given that interest rates will be cut, how much by? Well, the Marquette Turner team, in taking the above conditions into account, believe that the cut will be between half of one percentage points and three quarters of a percentage point. This will be an important shot in the arm for home owners and home buyers alike – whether it will be a silver bullet for the Australian housing market is probably on par with the likelihood of the eldest horse in the race winning from mid-stream.    Simon Turner

FYI: Read other articles on interest rates, or housing affordability, or the US Presidential Election

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