Australian Property News

Interest rate rise prediction

Posted on Tuesday, March 09 2010 at 5:08 PM

The Reserve Bank of Australia (RBA) could increase the official cash rate from its current four per cent to six per cent or 6.5 per cent by the end of next year, according to a Macquarie Research Strategist.

Rory Robertson says that sort of scenario could easily happen if not much goes wrong in between now and then.

The RBA increased the cash rate by 0.25 per cent last week, arguing that lending rates need to be closer to 'average'.

"And it has a clear bias to keep going, to keep hiking from the extraordinary low lending rates that were appropriate only while unemployment looked set to soar towards eight per cent or more," says Robertson.

"In the short term another hike from the RBA in the next three months remains highly likely."

"Longer term, with unemployment now at 5.3 per cent and trending lower, it's not saying much to say that if the economy does well over this year and next – as many now expect – taking lending rates back to average levels will quickly be deemed insufficient."

"The RBA would push lending rates well past average or 'neutral' towards a restrictive policy stance."

When working out how high the cash rate might need to go, Robertson points out that it was increased to 7.25 per cent in 2008 before the global financial crisis.

Take off one percentage point, he says, to accommodate the subsequent rise in bank lending margins and a similarly tight policy stance might involve the cash rate at six per cent to 6.25 per cent.