Rates to rise more quickly than expected

The National Australia Bank's monthly survey for April, released yesterday, suggests that official interest rates could rise more quickly during the rest of 2002, as higher wages and increased production add to inflationary pressures. In line with the Treasury forecast likely to be released in today's Budget, the NAB said that economic growth will average 3.75 per cent over 2002-2003. But with business confidence at its highest level since 1994, the NAB believes that the economy could grow at 4 per cent during 2003.

Alan Oster, the NAB's chief economist, said that the Reserve Bank seems increasingly nervous about policy settings below the “neutral” level, and that while it's generally expected that the cash rate will reach 5.5 per cent, the NAB believes that the RBA will get to that level much earlier than previously forecast – probably by the end of 2002. Mr Oster also said that if growth exceeds expectations, through a possible investment boom, official rates could go higher. He added that although there is no sign of an inflationary wages break-out, if the current trend to hire more workers continues this may put more pressure on the Reserve Bank to act. His comments came as both Dun & Bradstreet and TMP Worldwide released optimistic reports yesterday on business predictions for staff hiring and sales to September.