Interest rates on hold until November 2012: NAB

NAB predicts the cash rate will stay on hold until November 2012 following the release of revised, softer inflation figures.

Should the prediction prove true, it would mean 24 months of no change to official rates. The last time rates went up was in November 2010, when the RBA pushed up rates by 25 basis points to the current level of 4.75%

The bank pushed back its May 2012 rate rise prediction after the ABS revised core inflation to a lower figure in the June quarter and in the words of the bank’s economist Alan Oster and Rob Henderson, “fundamentally altered the history of the underlying CPI”.

June quarter CPI is now estimated to have risen by 0.6% (down from the previous estimate of 0.9%), to be 2.5% higher over the year (previously 2.7%).

The September quarter CPI figure will be calculated under the revised methodology after the ABS found an increased number of expenditure classes to be seasonal and this has affected seasonality in the underlying CPI.

According to Oster and Henderson, it appears that about half of the downward revision in the June quarter was attributable to the seasonal adjustment of petrol, hospital and medical services and tobacco, although these are likely to be reversed in other quarters.

Westpac is sticking with its forecast of a December rate cut due to households' growing unemployment expectations, which rose 8.5% in September following on from a 2% gain in August. 

"It is also worth noting that both the level of unemployment expectations and the rate of change in unemployment expectations are now giving a strong signal that households are already under stress and that a rate hike based on domestic fundamentals is not called for. In fact the current survey is now giving a very strong signal that based on household fundamentals; the next more in rates is more likely to be down," says Westpac's economic team. 

"With every passing month, the message coming from household sector is increasingly clear: that interest rates are very contractionary and in fact, the case is building that they should be lowered if the RBA would like to keep a neutral to modestly tight policy setting."

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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