Cash rate to peak at 4.5pc: Westpac

The official cash rate will only hit 4.5 per cent in 2010, Westpac’s chief economist Bill Evans has claimed.

According to Mr Evans, the RBA is likely to leave rates on hold for the majority of 2010, given the fact that the economy is still recovering and the central bank has already raised rates three times in as many months.

“We have consistently argued that ongoing uncertainties in the global capital markets, disappointments in the pace of recovery in the major economies (Europe, US and Japan), availability of credit in the domestic market, and sensitivity of the household sector to a variable mortgage rate around 7 per cent would move the RBA into a holding pattern for much of 2010,” Mr Evans said.

“As recently as last week a poll of 21 economists showed that 13 expected rates to reach anywhere between 5 and 5.5 per cent by end 2010 while another six expected the rate to reach 4.75 per cent. Only three, including Westpac, expected rates to peak at 4.5 per cent or below.

“Markets have now scaled back the assessed peak in 2010 to around 4.9 per cent, which in our view is still too high.”

Westpac indicated that a fall in consumer confidence would force the RBA to keep rates on hold when it meets again in February 2010.

The official cash rate will only hit 4.5 per cent in 2010, Westpac’s chief economist Bill Evans has claimed.

According to Mr Evans, the RBA is likely to leave rates on hold for the majority of 2010, given the fact that the economy is still recovering and the central bank has already raised rates three times in as many months.

“We have consistently argued that ongoing uncertainties in the global capital markets, disappointments in the pace of recovery in the major economies (Europe, US and Japan), availability of credit in the domestic market, and sensitivity of the household sector to a variable mortgage rate around 7 per cent would move the RBA into a holding pattern for much of 2010,” Mr Evans said.

“As recently as last week a poll of 21 economists showed that 13 expected rates to reach anywhere between 5 and 5.5 per cent by end 2010 while another six expected the rate to reach 4.75 per cent. Only three, including Westpac, expected rates to peak at 4.5 per cent or below.

“Markets have now scaled back the assessed peak in 2010 to around 4.9 per cent, which in our view is still too high.”

Westpac indicated that a fall in consumer confidence would force the RBA to keep rates on hold when it meets again in February 2010.

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