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.
After the two 25-basis point rise in October and December, the financial market is registering a 75 per cent chance of another 25-basis point cash rate increase. According to a survey by the National Australia Bank, the index for business conditions jumped from nine points to 12. This rise is NAB’s highest level in 21 months.
Also, the NAB business confidence survey rose by two points in October to bring their index level to 16. These quick jumps bridge the gap of escalating confidence levels that businesses are feeling in recent months.
Other parts of the condition index improved as well with profits up nine points to bring its index level to 13. Also, trading went up seven points and employment hiked eight points to peg their index levels at 13 and seven respectively.
These positive outcomes were registered despite the interest rate hikes in October. Because of which, business must be well aware of the possibility of another rate increase in November by the time they were surveyed in late October.
As an effect of these developments, ANZ senior economist Shane Lee said that this survey adds weight to the discussions that RBA will tighten its rates next month.
However, the forward orders index fell from seven points to three. Because of this, Commonwealth Securities economist Savanth Sebastian said that this development suggests that businesses might not increase their production in the coming months. He also added that given ongoing global financial crisis, it would be better for the RBA to raise the cash rate next year.
Sebastian also added that the employment and capital expenditure date at month’s end will determine whether a December rate increase is imminent. In relation to this, economists expect a 5.8 per cent unemployment rate for October after unexpectedly dropping from the 5.7 per cent level in September.
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