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July rates to hold firm

03 July 2009 Reporter

The RBA’s policy-setting board will meet next Tuesday to determine the interest rate benchmark, however, economists are tipping rates will remain unchanged.

But while economists are insisting the RBA will not raise rates in the foreseeable future, market traders are estimating that rates will increase by half a percentage point within a year.

Yesterday traders were pricing only an 8 per cent chance of a quarter-point cut on Tuesday; betting instead on a half point rise over the coming year.

In contrast with the trader’s sentiment Commonwealth Bank of Australia chief economist Michael Blythe told The Australian Financial Review that he anticipates a quarter-point cut to 2.75 per cent by September.

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“There is a big, theoretical debate going on about just what central banks should do and I’m not sure it has been resolved,” Mr Blythe said.

“Once it is clear the economy is on stable footing, central banks will tend to raise rates quite quickly until they get to a more normal level, which for Australia we think falls around 5.5 per cent in the cash rate.”

July rates to hold firm
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