Westpac firms on Cup day rate rise

Westpac is forecasting November 1 as the likely date for the RBA to next push up the cash rate.

According to the bank’s senior economist, Andrew Hanlan, a November rate rise is dependent on “an improvement in consumer spending and more clarity on the situation in Europe”.

“We anticipate greater momentum in the domestic economy as we head into 2012,” Hanlan says in Westpac’s July Market Insights report.

“By then, the disruptions from the floods and cyclones of early this year will have faded and the mining investment upswing will be gaining momentum and greater breadth, as construction on a number of new projects commences.”

Westpac firming up on November as the most likely date for a rate rise follows the ANZ forecasting no rate rise at all until February 2012.

In its July quarterly outlook, released last week, St George says “there is now a growing risk that no tightening will be needed this year”.

In its June 2011 report, Westpac chief economist Bill Evans said the bank still favoured a hike in the second half of 2011, with November more likely than August. In May 2011, Westpac had forecast a rate rise in September.

But following the July decision and accompanying RBA statement, Hanlan says the bank’s previous hawkish sentiment on rates has now moderated and suggests that, based on current information, there is no urgency to move rates.

“The strange thing is that we were very surprised when the bank suddenly adopted their hawkish tone during May as we judged that the case for a rate hike had not been made,” he says.

The 2011 second quarter inflation update, due to be released on July 27, is expected to be the next trigger as to whether the RBA adjusts rates upwards in August.

“We’re forecasting quarterly core CPI to moderate from 0.9% to 0.7%, an outcome that should extend the rate pause.

“Given current domestic and global developments, the board is likely to need to see another 0.9% rise for it consider an immediate move on rates at the August meeting,” Hanlan says.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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