Rates steady, but will soon rise
(2 September 2009 – Australia) While the RBA decided to keep the cash rate steady, both banks and the Government have predicted that rates will soon rise.
In discussing the decision, RBA Governor, Glenn Stevens, said that economic conditions in Australia are stronger than was expected, with confidence increasing and policy initiatives bringing forward spending.
Stevens also said that it now appears that investment may not be as weak over the year ahead as earlier expected. Higher dwelling activity and public demand will also start to provide more support to spending soon and, hence, growth is likely to firm going into 2010.
Looking forward to the effects of interest rate levels on inflation, Stevens said that the likelihood of inflation being persistently below the target now looks low, suggesting that rates could soon increase to keep inflation in check.
While the rates remain at 3.0 percent for the fifth consecutive month, Federal Treasurer Wayne Swan noted that as rates are at emergency levels right now, at some stage in the future they can be expected to move.
The banks are more certain that rate increases will come soon, with NAB bringing forward its forecast of rate rises. The bank reportedly has predicted a 25 basis-point increase in the RBA’s cash rate in November, and similar rises in December and February.
NAB’s economists said that they changed their stance because they believe the RBA will question whether the current low interest rate is appropriate when business and consumer confidence have risen so sharply.
Stevens also said that it now appears that investment may not be as weak over the year ahead as earlier expected. Higher dwelling activity and public demand will also start to provide more support to spending soon and, hence, growth is likely to firm going into 2010.
Looking forward to the effects of interest rate levels on inflation, Stevens said that the likelihood of inflation being persistently below the target now looks low, suggesting that rates could soon increase to keep inflation in check.
While the rates remain at 3.0 percent for the fifth consecutive month, Federal Treasurer Wayne Swan noted that as rates are at emergency levels right now, at some stage in the future they can be expected to move.
The banks are more certain that rate increases will come soon, with NAB bringing forward its forecast of rate rises. The bank reportedly has predicted a 25 basis-point increase in the RBA’s cash rate in November, and similar rises in December and February.
NAB’s economists said that they changed their stance because they believe the RBA will question whether the current low interest rate is appropriate when business and consumer confidence have risen so sharply.
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