Interest rates to rise in November

Interest rates to rise in November

21 October 2009 by Staff Reporter 0 comments

The Reserve Bank of Australia (RBA) looks set to lift rates again in November.

According to the minutes of the monetary policy board meeting, released yesterday, the RBA agreed that the risks in leaving the official cash rate at its emergency low had increased.

“Keeping interest rates at very low levels for an extended period could threaten the achievement of the inflation target over the medium term,” the minutes read.

“More generally, very expansionary policy could result in the build-up of other imbalances in the economy, which would ultimately be detrimental to economic growth.”

The RBA minutes noted that there was a possibility that the strength in the domestic economy had been largely due to the greater than expected impact of the fiscal stimulus, which left open the attendant risk that activity might slow as that stimulus faded.

It was also likely that the appreciation of the exchange rate would act as a contractionary influence on activity and help contain inflation.

While these considerations weighed in favour of keeping the current cash rate on hold, the RBA said it was “possibly imprudent” to keep rates at their low for another month, fueling speculation that interest rates are set to increase again next month.

NAB chief economist Alan Oster said he expects rates to rise 25 basis points in November and another 25 basis points in December, taking the official cash rate to 3.75 per cent before the end of 2009.

The Reserve Bank of Australia (RBA) looks set to lift rates again in November.

According to the minutes of the monetary policy board meeting, released yesterday, the RBA agreed that the risks in leaving the official cash rate at its emergency low had increased.

“Keeping interest rates at very low levels for an extended period could threaten the achievement of the inflation target over the medium term,” the minutes read.

“More generally, very expansionary policy could result in the build-up of other imbalances in the economy, which would ultimately be detrimental to economic growth.”

The RBA minutes noted that there was a possibility that the strength in the domestic economy had been largely due to the greater than expected impact of the fiscal stimulus, which left open the attendant risk that activity might slow as that stimulus faded.

It was also likely that the appreciation of the exchange rate would act as a contractionary influence on activity and help contain inflation.

While these considerations weighed in favour of keeping the current cash rate on hold, the RBA said it was “possibly imprudent” to keep rates at their low for another month, fueling speculation that interest rates are set to increase again next month.

NAB chief economist Alan Oster said he expects rates to rise 25 basis points in November and another 25 basis points in December, taking the official cash rate to 3.75 per cent before the end of 2009.

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