The last time the RBA board met most economists said an interest rate cut was a definite.
As you would remember, they were proved wrong.
Six board members ended up with the majority vote, with only three wanting to pass on a cut (that means only three to convince this time around).
We have more data to give the board confidence that a cut would be prudent but The Motley Fool’s chief investment officer Scott Phillips has erred on the side of caution.
His justification?
“It’s a parlour game”, he said.
“Pundits,” as John Kenneth Galbraith once said, “forecast not because they know, but because they are asked”.
Scott said economists is “at it best when it explains” and “at its worst when it tries to pretend it can predict.”
“Last time, the market thought the odds were 95%-plus that we’d get a rate cut,” Scott said.
“And what did the RBA do? It held rates steady.
“Oops.
“And today? The implied odds are essentially 100 per cent.
“Now, the market might be right. We’ll find out at 2.30pm, today.”
The finance expert noted that the RBA has said “essentially nothing” new about interest rates for the last couple of meeting and since then there has been “weak GDP, strong employment (and blessedly low unemployment) and falling inflation”.
Three out of 34 experts from Finder’s analysis predicted a cut, with similar justifications, and they could be right.
Scott stopped short of making any predictions himself.
“I’m not saying the market will be wrong about today’s rates call.
“But I’m not saying that it’ll be right.
“What I am saying is that prediction is hard.”
One thing is for sure, we will know in 15 minutes.