NAB revises rate and house prices forecast

Following on from the Reserve Bank of Australia’s decision to raise the official cash rate by 25 basis points to 3.25 per cent last week, the National Australia Bank has now revised its rate rise predictions.

According to NAB’s latest monthly business survey and economic outlook, released today, the RBA will raise rates 50 basis points before the year’s end, taking the official cash rate to 3.75 per cent.

But despite changing their rate outlook for 2009, NAB has kept its longer term rate path prediction unchanged at 4.25 per cent by the end of 2010 and 5.50 per cent by 2011 end.

NAB’s chief economist Alan Oster said the RBA’s decision to raise rates was thanks to a better than expected unemployment rate and a surge in business confidence.

“Fundamentally we still see the Australian economy as continuing to experience strong demand that has been heavily influenced by the timing of the fiscal packages. Business, while more optimistic, continues to meet that demand significantly from stocks and until recently imports,” Mr Oster said.

“Looking forward, we still see softness in consumer spending – possibly bottoming in early 2010. However the cash drops have clearly helped avoid a much harsher response.

“In an environment of under-building, the FHOB and low rates, house prices have recently jumped significantly – albeit they remain around the same levels as 12 months ago.

“While we expect the momentum to be maintained in the short run the combination of rising rates and higher unemployment is expected to moderately weaken house prices in 2010 – and keep consumption on a relatively subdued path.”

Following on from the Reserve Bank of Australia’s decision to raise the official cash rate by 25 basis points to 3.25 per cent last week, the National Australia Bank has now revised its rate rise predictions.

According to NAB’s latest monthly business survey and economic outlook, released today, the RBA will raise rates 50 basis points before the year’s end, taking the official cash rate to 3.75 per cent.

But despite changing their rate outlook for 2009, NAB has kept its longer term rate path prediction unchanged at 4.25 per cent by the end of 2010 and 5.50 per cent by 2011 end.

NAB’s chief economist Alan Oster said the RBA’s decision to raise rates was thanks to a better than expected unemployment rate and a surge in business confidence.

“Fundamentally we still see the Australian economy as continuing to experience strong demand that has been heavily influenced by the timing of the fiscal packages. Business, while more optimistic, continues to meet that demand significantly from stocks and until recently imports,” Mr Oster said.

“Looking forward, we still see softness in consumer spending – possibly bottoming in early 2010. However the cash drops have clearly helped avoid a much harsher response.

“In an environment of under-building, the FHOB and low rates, house prices have recently jumped significantly – albeit they remain around the same levels as 12 months ago.

“While we expect the momentum to be maintained in the short run the combination of rising rates and higher unemployment is expected to moderately weaken house prices in 2010 – and keep consumption on a relatively subdued path.”

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