The minutes of the RBA’s March 2 board meeting, released on Tuesday, reveal the bank raised the cash rate to
four per cent in response to two months of data suggesting the economy might be growing at or close to trend.
But last week’s Australian Bureau of Statistics (ABS) housing finance figures may concern the RBA after they
showed a seasonally adjusted 7.9 per cent fall in home loan commitments in January.
“I think that will be enough to spook them, certainly it should spook everyone,” ICAP economist Adam Carr said.
“Given the sharp drop in home lending I almost certainly think they won’t move in April.”
But he said the rest of the RBA minutes were bullish on domestic growth, even as question marks hang over the
US, UK economies and Europe’s ongoing sovereign debt crisis.
“But they don’t think the issues, particularly the fiscal issues in Europe, warrant a pausing at this stage because
they’re of the opinion that we’re not going to see a marked slowing of global growth as a result of those issues,”
Mr Carr said.
JP Morgan economist Helen Kevans said the minutes suggested the RBA would keep rates at four per cent until
May, when they would resume lifting toward a five per cent cash rate by year end.
“It comes across to us that the RBA is very comfortable with its moves at the moment,” she said.
“They suggest that the early start to their normalisation process has given them time to be flexible going
forward.”
The RBA started its current rate hiking cycle in October 2009, when it lifted the cash rate off a 49-year low of
three per cent to 3.25 per cent.
Two rapid moves in November and December brought the interest rate to 3.75 per cent.
The bank paused at its first meeting of 2010 in February before lifting again, to four per cent, this month.
Commonwealth Bank senior economist Michael Workman agreed, adding that the RBA would take the rate to
5.5 per cent by the end of 2011.
“Our view is that they’ll continue to lift rates gradually for the rest of this year,” he said.
“Most probably not in our view in April, most probably in May.”
He said the downside risks that haunted the Australian economy six to nine months ago had largely been
erased, with December quarter gross domestic product figures at a robust 0.9 per cent.
“So people should expect gradual cash rate rises,” he said.
The minutes highlighted the growth prospects that could occur if mining sector investment proceeds.
Mr Workman said gas projects, like the Gorgon project in WA, would significantly lift Australia’s potential growth
rate.
“Of course, that’s where the market sees the risk of the cash rate rising above that normal level,” he said.
“But that’s really an issue for late next year when we get more information.”
Most economists believe a “normal” cash rate lies between 4.5 per cent to 5.5 per cent.
This article was published in the Toowoomba Chronicle on March 16.
APS Growth Co-Founder, Anthony Simon believes that rates will continue to rise due to inflationary pressures.
“Businesses and Investors are becoming more confident, hence the increase in investment loans. Inflation is
an investors friend; they gain from assets increasing in value, rather then staying at the price they paid for the
asset”
Related Taxonomy
-Real estate news
-Interest rates
