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Rates to hit 5.5pc by end 2011

Rates to hit 5.5pc by end 2011

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The official cash rate is forecast to hit 5.5 per cent by the end of 2011, according to the National Australia Bank’s (NAB) monthly business survey and economic outlook.

Following the Reserve Bank of Australia’s decision to raise rates by 25 basis points in October, NAB has altered its rate forecast to include another 50 basis point increase before the end of this year.

While the bank has decided to change its immediate forecasts for 2009, it has left its longer term rate path prediction unchanged however at 4.25 per cent by the end of 2010 and 5.5 per cent by the end of 2011.

Yesterday the RBA governor Glenn Stevens all but confirmed that Australia is set for a string of rate rises over the coming months.

Speaking at a financial breakfast in Perth, Mr Stevens said the period of greatest weakness in the Australian economy is probably past.

“Barring another serious international setback, the economy is likely to continue on a path of gradual expansion during 2010," he said.

"If we were prepared to cut rates rapidly, to a very low level, in response to a threat but then were too timid to lessen that stimulus in a timely way when the threat had passed, we would have a bias in our monetary policy framework. Experience here and elsewhere counsels against that approach.”

Despite the now imminent rate hikes, Mr Stevens said, interest rates are still sitting at a 45 year low and the move away from the emergency setting of 3 per cent signals the increasing health of the economy.

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Rates to hit 5.5pc by end 2011
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