Australian Property News
Rates still expected to rise in 2010
Posted on Friday, February 05 2010 at 5:20 PM
Three consecutive interest rate rises may have bought the Reserve Bank of Australia (RBA) a little time to sit on the sidelines in early 2010, according to CommSec economist Savanth Sebastian.
The RBA board decided to leave rates on hold for a month when it met this week, and Sebastian says it's clear from the bank's subsequent Statement on Monetary Policy that the upward trajectory of the growth forecasts hasn't resulted in significant inflationary pressures.
"Effectively the RBA has bought itself a place in the sun," Sebastian says. "Australia's economy is in good shape but consumers are still a little reluctant to spend and business a little reluctant to invest."
"And while Asian economies are looking good, the same can't be said for the developed nations. The bottom line is that conditions are far from rosy, justifying caution from the Reserve Bank."
Sebastian says interest rates are still likely to rise over 2010, but the Reserve Bank wants to make sure the economy is continuing to lift as it expects.
"CommSec still expects the cash rate to lift to around 4.75 per cent to five per cent by the end of the year," he says.
"At present the risks are more skewed to the downside."
"Interestingly, in recent times the Reserve Bank has commented on a return to trend growth and the latest upgrade to growth forecasts has quantified that result. The considerable upgrade to growth forecasts is clearly why rate hikes started earlier than previously anticipated."
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