Wed, May 8, 11:45pm by Kevin Pitstock
Punters who bet on an interest rate cut for May at Sportingbet Australia were rewarded Tuesday when the central bank cut interest rates to a record low. The Reserve Bank of Australia announced a lower benchmark cash rate of 2.75%, which surprised many economists, due to a large number of previous cuts. Solid explanations exist for the change of interest rates, though.
The RBA cut interest rates because the Australian dollar is at a 30-year high. Australia’s strong currency hurts manufacturers and exporters, since the price of exports increases in many foreign markets. Retail spending and foreign tourism have been up, since consumers want to take advantage of the current strength of the Aussie dollar abroad. This has hurt local tourism and domestic retailers in Australia, too.
Meanwhile, economic sectors like home building and consumer spending haven’t responded to more than a year of cuts by the bank, so the RBA decided to make another attempt to change the trends.
People who follow Australia’s economy have grown used to hearing about rate cuts by the Reserve Bank of Australia in recent months. This was the seventh rate cut in a little over two years, which totals over 2% off the overall rate in that span. Still, the move came as a surprise to some observers, who might not have imagined such a turn of events at the start of April.
At the start of April 2013, the odds on a rate cut of between 0.01% and 0.25% at Sportingbet Australia were a significant $7.50. By the time betting closed on the proposition, an influx of money on behalf of a lower interest rate had lowered the betting line to $2.45. Those who bet on the original odds won a large return on their wagered money.
Because of the lower rate for May, gamblers don’t expect to see the interest rate lowered next month. When new betting lines were announced for the coming June period, the favourite bet was “no change”, which sat at a payout of $1.30 if no change occurs.
If another rate cut between 0.01% and 0.25% happens, gamblers who bet on the proposition at opening would be paid $3.10. The odds are much higher that a rate cut of greater than 0.25% is instituted, paying off at $21. The longest odds for June are the increase on the interest rate, which would net a player $41.
After a day of betting activity for this coming month, the lines changed on some of the propositions. Those who wagered on “no change in the rate” bet that wager to $1.32, while bets on whether the overall rate will be lowered between 0.01% and 0.25% are now paying $3.00 even. Few people sense a radical increase coming. In fact, betting on an increase of more than 0.25% went from $21 to $26 in one day’s time. Not many wagers occurred on the proposition that the interest rate would increase, because that proposition stayed at $41.
The monthly changes aren’t the only economic proposition bets on the wagering ticket. Gamblers also can bet on what the RBA interest rate is going to be at the end of the 2013 year. With 11 different propositions to choose from, the payouts range from $2.75 to $101.00 per dollar wagered all the way. So many choices mean it’s hard to know which bet is best, so gamblers might prefer the monthly wagers at Sportingbet Australia.
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