Six rate rises expected, starting early 2010

Financial markets are expecting that the Reserve Bank may raise rates more than six times, starting early next year. In the August board minutes published yesterday, the RBA said it was unlikely there would be further cuts to interest rates as the outlook for the economy had started to brighten.

The RBA minutes stated that “the bank would in due course need to adopt a less expansionary policy stance.” Markets predict that there is a six per cent chance of a rate rise in September. The expectations of a rate rise by the end of the year are firming.

JPMorgan chief economist Stephen Walters said the RBA board would wait until early next year to raise rates. “Only if the domestic data fails to soften, or the global uncertainties are resolved unequivocally some time soon, will the RBA deliver a rate hike before the end of 2009,” Mr Walters said. “Once the hikes begin, though, we expect a steady drumbeat of 25 basis point hikes as the bank removes the generous policy accommodation in an orderly and resolute fashion.”

Source: The Australian