Rate hikes to hit before year end

The days of rock-bottom interest rates look numbered with the RBA now looking set to raise the cash rate before the year is out.

NAB has warned that the Reserve Bank of Australia (RBA) will start its tightening cycle earlier than expected with the first of three 25 basis points rises to hit in a matter of months.

The bank previously forecast two 25 basis point increases in February and March 2010, however, NAB predicts successive moves in November and December 2009 followed by a further 25 basis point increase in February 2010.

The July NAB Business Survey showed a jump in business confidence and a stabilisation of conditions.

This coupled with further signs that the pace of job shedding has slowed and construction spending is holding up provides evidence of the resilience of the Australian economy.

“It now seems likely that the RBA will ratify the market’s expectations of rate hikes before Christmas,” NAB’s group chief economist Alan Oster said.

“September and October still seem too early but by November we expect the time will be right for the first hike. We see the most likely path of policy being three consecutive 25 point increases in November/December/February, taking the policy rate to 3.75 per cent.

“After this, the RBA board are likely to pause as they view the flow of economic data and gain confirmation that the recovery is unfolding as expected,” he said.

“Two further 25 point moves in August and September 2010 are then likely, taking the rate to 4¼ per cent by year-end. Over 2011, we expect further policy tightening to 5½ per cent by the end of the year.”

 

The days of rock-bottom interest rates look numbered with the RBA now looking set to raise the cash rate before the year is out.

NAB has warned that the Reserve Bank of Australia (RBA) will start its tightening cycle earlier than expected with the first of three 25 basis points rises to hit in a matter of months.

The bank previously forecast two 25 basis point increases in February and March 2010, however, NAB predicts successive moves in November and December 2009 followed by a further 25 basis point increase in February 2010.

The July NAB Business Survey showed a jump in business confidence and a stabilisation of conditions.

This coupled with further signs that the pace of job shedding has slowed and construction spending is holding up provides evidence of the resilience of the Australian economy.

“It now seems likely that the RBA will ratify the market’s expectations of rate hikes before Christmas,” NAB’s group chief economist Alan Oster said.

“September and October still seem too early but by November we expect the time will be right for the first hike. We see the most likely path of policy being three consecutive 25 point increases in November/December/February, taking the policy rate to 3.75 per cent.

“After this, the RBA board are likely to pause as they view the flow of economic data and gain confirmation that the recovery is unfolding as expected,” he said.

“Two further 25 point moves in August and September 2010 are then likely, taking the rate to 4¼ per cent by year-end. Over 2011, we expect further policy tightening to 5½ per cent by the end of the year.”

 

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