Wednesday, 6 July 2011 'Interest rates on hold until August'

Cash rate steady in July - economists RBA eyes weaker domestic, global data Rate rise forecast for August
THE Reserve Bank of Australia is expected to hold interest rates steady when it meets tomorrow but a hike is tipped next month to temper the effect of the aggressive growth of the mining boom.

Economists have widely agreed the RBA would keep the cash rate at 4.75 per cent tomorrow but HSBC economist Paul Bloxham said recent RBA announcements reaffirmed the view that rates would need to rise by more than 50 basis points over the next 12 to 18 months to contain inflation, The Australian reports.
"We think the next hike will be August and are still calling for 100 basis points by mid-2012," he said.
"However, recent weaker domestic and global data suggest the risk is that it will take longer before rates rise, and that the whole process may be more elongated. Nonetheless, we think the risk that the next move is down . . . is very small.
"Overall, our view is that the current softer patch is largely temporary, reflecting some transition dynamics for an economy that is becoming more mining sector dependent, and that the underlying economy will continue to strengthen over the forecast horizon."
AMP Capital chief economist Shane Oliver said although he expected the RBA to maintain its inclination to raise rates at some point on the back of the mining boom, there was no urgency.
"Consumers remain cautious, house prices are falling, credit growth is tepid, the labour market has slowed and business confidence is soft, and so unless June quarter inflation data surprises on the upside at the end of the month, there is no need for an interest rate hike any time soon," he said.
Read more on this story at The Australian.
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