This article is from the Australian Property Journal archive
THE Reserve Bank will steadily raise interest rates to 5% by the end of next year, economists have predicted.
As widely tipped the RBA yesterday increased interest rates by 25 basis points, for the second month in a row after the initial move in October, to 3.5%.
Governor Glenn Stevens provided a number of reasons for the increase, primarily he said the global economy is improving and Australia’s economy is stronger than expected.
He noted that the Australian financial conditions are improving and asset prices are rising.
AMP Capital Investors senior economist Bob Cunneen said given improving economic and financial conditions, the RBA is likely to continue this strategy of gradually raising Australia’s cash rate.
“Another 0.25% is likely at the next December’s RBA Board meeting, with further incremental policy tightenings to be expected over the course of 2010.
“We expect the RBA will progressively raise Australian nominal interest rates towards 5.0% over the next year, taking Australia real cash rate back toward a more normal setting of circa 2.5%.” Cunneen said.
JPMorgan chief economist Stephen Walters said the third 25bp rate hike will be in December and he expects another 25bp hike in February, after the first Board meeting of 2010.
“In broad terms, we consider that about 100bp of the earlier policy adjustment was an “emergency” component of the policy accommodation.
“After this is removed in February, we believe the pace of tightening will slow, with the cash rate to be 4.5% by mid-year and 5% by the end of 2010,” he added.
“The longer intervals between hikes will allow RBA officials more time to test the resilience of the domestic economy and opportunities to guage whether the rebound globally has legs,” Walters concluded.
Australian Property Journal