This is the news on interest rates that I don’t like delivering but, as your economic and market messenger, I can’t sugar coat what possibly lies ahead. At this stage, it’s possible if you lose on the Cup on the first Tuesday in November, you’ll cop a bigger loss if you have a home loan!

Yesterday we saw the minutes from the last Reserve Bank board meeting. Reading the lines and reading between them, the message is pretty clear that if the economic data doesn’t say the previous 12 interest rate rises are sufficiently slowing up our spending, then you will cop another rate rise.

Of course, this would be music to the ears of those with no debt who are big savers. Term deposits rates have been falling lately so it’s becoming harder to get 5% rates for term deposits, unless you lock up your money for a long period. Also, I should remind term deposit savers that if you do get 5% and inflation is 4%, you’re really only growing your wealth by 1%.

The term deposit benefit is that it can prevent a wealth loss if the stock market falls drastically, but it’s not a smart wealth-growing tactic.

But back to the concerns of borrowers that the RBA could raise rates on November 7. This is what the CBA economics team said after reading the minutes of the last meeting in October.

They noted that “the Board has a low tolerance for a slower return of inflation to target than currently expected”. This is RBA-speak for inflation isn’t falling fast enough. And as the old Yellow Pages advertisement might have gone: “Not happy Australia. Not happy!”

Recall, the last monthly inflation number saw an uptick in annual inflation on a month-to-month basis from 4.9% in July to 5.2% in August. By the way, it wasn’t the fault of Aussie consumers because it was driven by oil price spikes, thanks to Vladimir Putin and OPEC+.

And now this Hamas-Israel problem could keep oil prices rising, which won’t help the RBA fight to lower inflation. This means the board could easily say we have to hit local consumers and businesses harder to curtail demand in order to bring down inflation driven by over-willing spenders to spend even with rising prices.

There would also be a concern that house prices keep rising and homebuyers keep searching for something to purchase, which means the rate rises haven’t scared off enough people.

Also, the impact of the mortgage cliff still has a way to go before all those who got into low fixed-rate loans during the lockdowns are put onto high variable rate loans, so a spending fall is still in the pipeline. And this is what the RBA has to think about before raising rates on Cup Day.

So, it’ll be the data drop over the next few weeks that will determine what happens with rates in three Tuesday’s time.

This is what CBA’s Craig James said to watch: “There are three key data releases for markets before the Melbourne Cup Day board meeting.” Here they are:

1. The September jobs report tomorrow.
2. 3^rd Quarter CPI next Wednesday; and
3. September retail trade on Monday week.

Clearly, the CPI inflation report is the most important of these economic publications.

And this is where I deliver potentially good news for interest rate worriers. “Our preliminary forecast for the Q3 23 CPI is broadly similar to the RBA’s implied profile,” James said. “We believe this is consistent with monetary policy on hold in November.”

That said, he is worried about how the monthly CPI will affect the quarterly CPI, which he sees as critical to the Cup Day rates decision.

Because of the above, Craig concluded his note with the following: “As such, we remain of the view that the November Board meeting is ‘live’ and ascribe a 40% chance to a rate increase”.

The bad news is that there is a 40% chance of a rate rise on Cup Day but also a 60% chance of no change.

It will get down to how the data drops worry the RBA, so all I can say is — watch this space!