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By: Staff Reporter
A spate of positive data that suggests the domestic economy is expanding has forced various banking economists to revise their outlook for interest rates.
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NAB’s group chief economist Alan Oster said he expects the Reserve Bank to raise interest rates more aggressively during the remainder of the year, with a 25 basis point increase expected in both April and May.
According to Mr Oster, the Reserve Bank is widely expected to lift the official cash rate to 5.25 per cent by year’s end.
“As reiterated in comments by Reserve Bank assistant governor Philip Lowe, the flow of recent data has further confirmed that the Australian economy is already in a solid upswing. Over the period late 2008 / early 2009 the moderation in activity in Australia was mild by international standards. Thus, we are entering this upswing with relatively low levels of unemployment and with capacity utilisation rates already around long run average levels,” Mr Oster said.
“While inflation in the near term looks likely to be subdued, that is unlikely to be the case in the longer run, were official cash rates not to be moved relatively quickly to more neutral levels.
“I expect continued price pressures to lead to a cash rate as high as 6 per cent by the end of 2011.”
Mr Oster’s comments come just days before official figures (due out on Wednesday) are expected to show solid growth in retail sales, building approvals and credit.
The official figures are expected to show a gradual improvement in private demand for credit, with estimates of a 0.4 per cent increase as an improving appetite for debt among businesses offsets a slow-down in home lending.
