Interest rates unlikely to rise tomorrow

Interest rates may be kept on hold next week and even in December due to lower-than-expected inflation figures released late last week. Inflation grew by 0.7% in the September quarter and by 2.8% in the year to September

But our surging economy, lower unemployment and the return of the mining boom will only continue to put pressure on rates – so it’s more a matter of when will rates rise, rather than if rates will rise.

CommSec economist Craig James says rates are still trending upwards:“The RBA has already told us that if interest rates are going to move, they are going to move upwards. The mining boom will continue, the job market is going to tighten and no matter which way you cut it, they are suggesting this higher activity will require higher interest rates.”

“Any movement in December will depend on the release of the state of monetary policy due out next week. If the inflation forecasts by the RBA are maintained or increased, then the chance of a rate hike in February or January could increase.”

“The RBA would struggle to come up with reasons to raise rates… Sure, they could highlight the risks down the track, but right now the manufacturing sector is going backward, housing prices are flat. These hardly suggest rates will increase.”

Looking forward, James says rates are going to increase.

“All the indicators point to higher rates in the future. No matter which way you put it, economic activity is going to grow and that is going to mean higher rates in the future.”

Other economists agree, with Westpac’s Anthony Thompson saying the likelihood of a rate hike tomorrow has decreased and the next rate hike is likely to be in February

However, others believe the likelihood of a rate increase tomorrow is still on the cards. ANZ says that a rate hike in November “remains live”, and is still in the bank’s forecast, but also admits the prediction is a “close call”.


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