A February 2010 interest rate hike by the Reserve Bank of Australia is unlikely to happen due to the recent market movements.
Swift movements in the market began on December 1 after the central bank revealed the minutes of their meeting. These shake-ups were fueled even more after RBA Deputy Governor Ric Battellino’s speech.
Battellino said that rates can remain at its present rate by February due to the monetary policy’s positive stance that brought it to normal range. This comment by Battellino that he stated at the Australasian Finance & Banking Conference in Sydney surprised many market movers and this could trigger a slump in the Australian dollar under the US$90 level.
He also added that though the cash rate is still at a low 3.75 per cent, monetary policy was back at normal because the deposit’s current level, as well as the lending rates for business and housing, made the cash rate at 4.75 per cent before the crisis.
The RBA Deputy Governor’s remarks were delivered an hour after the Australian Bureau of Statistics released data that economic growth during the third quarter of 2009 is lower than the target level. This is due to the downfall of exports though imports are going up. Meanwhile, household demands and businesses purchasing more investments and equipments remain solid.
Also, the percentage of the financial market that is predicting another 25-basis point increase in February went down from 67 to 45 per cent.
Due to these figures, ANZ acting chief economist Warren Hogan reacted that the GDP numbers mean that there must be some urge to put interest rates back to neutral and that Battellino’s remarks can cause a major setback to having substantial gains in the cash rate in the succeeding months.
Hogan also added that the emergency setting of interest rates is now erased and the policy for it will be adjusted according to present conditions. Also, Westpac chief executive Gail Kelly told after their annual meeting that the RBA might raise rates very carefully next year though the cash rate level is not at normal yet.
However, Westpac chairman Ted Evans commented that recovery is still a long road ahead. He also defended their bank’s move to raise interest rates higher than that of the RBA’s. Evans explained that since interest rates are rising in the domestic and global scene, it is right for them to increase these costs to prevent the further weakening of their bank and of the Australian financial and economic system all together.
Evans also added that they have absorbed the rate increases rather than let their borrowers suffer it. He also claimed that deposit rates being held down or business rates being raised is unfair to subsidize home loan rates.
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