Interest rates to hit 5 per cent before 2011

The official cash rate will hit 5 per cent before the end of 2010, according to a report from AMP Capital.

AMP Capital Investors chief economist Shane Oliver said there were clear indications from the Reserve Bank of Australia that an interest rate rise was getting closer if not imminent.

Mr Oliver said the continuing run of better than expected economic data, including GDP growth of 0.6 per cent in the June quarter, means the chance of an interest rate hike by the end of the year is steadily rising.

“By end 2010 we expect that the cash rate will have increased to 5 per cent. It is worth bearing in mind though that this will just have taken interest rates back to normal levels and while the start of a tightening cycle may initially cause jitters in financial markets it won’t be until rates reach restrictive levels (judged to be 6 per cent or more) that monetary policy will start to become a real problem for the share market and the economy,” Mr Oliver said.

The official cash rate will hit 5 per cent before the end of 2010, according to a report from AMP Capital.

AMP Capital Investors chief economist Shane Oliver said there were clear indications from the Reserve Bank of Australia that an interest rate rise was getting closer if not imminent.

Mr Oliver said the continuing run of better than expected economic data, including GDP growth of 0.6 per cent in the June quarter, means the chance of an interest rate hike by the end of the year is steadily rising.

“By end 2010 we expect that the cash rate will have increased to 5 per cent. It is worth bearing in mind though that this will just have taken interest rates back to normal levels and while the start of a tightening cycle may initially cause jitters in financial markets it won’t be until rates reach restrictive levels (judged to be 6 per cent or more) that monetary policy will start to become a real problem for the share market and the economy,” Mr Oliver said.

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