Interest rates to rise above ‘neutral’ setting

Despite a slight drop in business confidence in March, economists remain bullish about the future of interest rates.

According to NAB’s latest monthly business survey and economic outlook, the RBA is expected to raise the official cash rate in May, August, September and December – taking it to 5.25 per cent by year’s end.

NAB chief economist Alan Oster said the recent spate of economic data would encourage the RBA to move monetary policy back to normal relatively quickly and move into a significantly tight stance in 2011.

“We should see cash rates moving up to 5. 25 per cent by end 2010 – which would, in an environment of higher bank spreads, be a touch on the tight side of neutral,” Mr Oster said.

"Moving into 2011 we expect rates to rise to 6 per cent which is both above current market pricing and around 0.75 per cent above neutral.”

Despite a slight drop in business confidence in March, economists remain bullish about the future of interest rates.

According to NAB’s latest monthly business survey and economic outlook, the RBA is expected to raise the official cash rate in May, August, September and December – taking it to 5.25 per cent by year’s end.

NAB chief economist Alan Oster said the recent spate of economic data would encourage the RBA to move monetary policy back to normal relatively quickly and move into a significantly tight stance in 2011.

“We should see cash rates moving up to 5. 25 per cent by end 2010 – which would, in an environment of higher bank spreads, be a touch on the tight side of neutral,” Mr Oster said.

"Moving into 2011 we expect rates to rise to 6 per cent which is both above current market pricing and around 0.75 per cent above neutral.”

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