Official interest rates predicted to hit 5.75% by 2012

With interest rates predicted to increase over the coming year as the Reserve Bank continues to keep a lid on inflation and the Australian economy, the question many home owners and investors are asking is; just how high will they go?

According to a recent report in The Australian, the answer from HSBC chief economist Paul Bloxham is a full 100 basis points over the next 15 months, bringing the official cash rate to 5.75%.

Bloxham, a former senior official with Australia’s central bank, predicts the first move by the RBA for 2011 will come in the second quarter of the year, despite recent data suggesting our economic growth is slowing on the back of weak retail sales.

He says, “This is not the main game for Australia,” which is instead being played out in the lucrative commodities sector and the insatiable Asian appetite for our natural resources.

Bloxham predicts that Australia’s economy will grow by a massive 4.1% in 2011 and 4% in 2012 and says of the resources boom, The sheer size of this expenditure means that, during the next couple of years, other parts of the economy need to grow more slowly to make way.”  

He adds, “High commodity prices are the key driver of rising incomes and a mining investment boom, while household spending is necessarily restrained.”

The recently released employment figures showed that we are still creating more jobs. The fact that we won’t have enough skilled labour for all the new jobs that are being created will only add fuel to the inflation fire as wages rise and this will be another factor influencing hte RBA’s decision on interst rates.


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