A Reserve Bank of Australia interest rate hike in February 2010 is unlikely to happen because of the market’s recent movements.
Swift markets movements began on the 1st of December after the RBA made their meeting’s minutes public. These movements were also backed by RBA Deputy Governor Ric Battellino’s speech.
Battellino stated that rates can maintain its current rate until February 2010 because the positive stance of the monetary policy puts the rates at normal. This comment of his during the Australasian Finance & Banking Conference in Sydney shocked a lot of market movers and as a result, this could bring the Australian dollar under the US$90 level.
He also claimed that the monetary policy is back at normal because the current level of deposit and lending rates for housing and business brought the cash rate to a pre-crisis level of 4.75 per cent.
Battellino’s remarks were delivered an hour after an Australian Bureau of Statistics report showed that economic growth during the September quarter is lower than expected. This slow down is due to the fall of the export market though imports are rising. However, household demands and businesses investment and equipment purchasing are going strong.
Also, the figure of the financial market that believes that another 25-basis point increase is imminent in February was reduced from 67 to 45 per cent.
Because of these developments, ANZ acting chief economist Warren Hogan said that the slow GDP growth shows that interest rates are not in neutral ground and that measures must be done to bring it back. He also added that Battellino’s remarks can cause a road block to gains via the cash rate in early 2010.
Hogan also stated that the emergency level of interest rates is now gone and that the policy for it will be tailor-fit to current conditions. On the other hand, Westpac chief executive Gail Kelly told after their annual meeting that the RBA might carefully raise rates in 2010 though the cash rate level is not within normalcy.
However, Westpac chairman Ted Evans commented that the road to recovery is still long. He also defended Westpac’s move to raise rates higher than RBA’s. Evans reasoned that since interest rates are rising, it is just right to increase costs to prevent a potential meltdown of their bank and of the Australian economic and financial system.
Evans also added that Westpac has absorbed rate increases rather than let their borrowers feel its effects and that it is unfair to subsidize home loan rates by holding down deposit rates and raising business rates.
Due to the soaring business conditions, a possibility of another interest rate rise could be discussed when the Reserve Bank of Australia board will meet again in December.
