Business confidence tipped to keep a lid on interest rates for a while

Although much of the developed world would consider Australia to be in an enviable economic position right now, staging a remarkable recovery after the GFC, locally confidence is not holding so strong.

This means borrowers could enjoy a brief reprieve from the Reserve Bank, with analysts expecting interest rates to remain on hold until well into 2011.

A recent report in The Australian revealed that although business conditions rose to +4 in November from +2 in October, business confidence fell to +6 from +8 for the same period – the third month in a row that there’s been such a decline.

According to the National Australia Bank’s monthly business survey, which also indicated that the retail and wholesale sectors were negatively impacted by the bank’s rate rises in November, falling confidence levels reflect a continuing uncertainty in the Australian economy.

NAB’s survey results reveal that the retail sector experienced its worse conditions in two years during November, while confidence in the mining sector rose to its highest level since December 2005 even though conditions fell sharply with a dive in profits.

Chief economist with NAB Alan Oster, said the RBA is probably surprised by the weak conclusion to the end of 2010 and would most likely leave interest rates on hold until around May, given the high Aussie dollar which is keeping inflation in check.

Experts expect core inflation to remain at around 2.75% right through until the end of 2012.


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