The recent flood disaster could stop the Reserve Bank from lifting rates until the third quarter of the year.

According to National Australia Bank’s Monthly Business Survey, the Board could postpone the next rate hike until well after May because of the flood disruption.

“The RBA will be watching cost pressures during the reconstruction phase. But while the floods may force the Board to delay the next rate hike, NAB still expects the official cash rate to peak at 5.25 per cent by August 2011,” NAB’s chief economist Alan Oster said.

Mr Oster said buyer confidence had dropped dramatically in the aftermath of the natural disaster, but preliminary indications suggest confidence is starting to rebound nationally. As such, Australian growth forecasts remain presently unchanged.

source: www.theadviser.com.au

Economists remain confident that the Reserve Bank of Australia will not lift the official cash rate untill the second quarter of 2011.

According to AMP’s chief economist Shane Oliver, the nation’s economic data over the last couple weeks has been generally soft, with a slight fall in home sales and house prices, a fall in building approvals and continuing soft growth in private sector credit.

“As a result of this data, we remain of the view that tightening will not become aggressive,” Mr Oliver said.

Mr Oliver also said that the recent floods would further delay the next RBA tightening as Australia struggles to get its fresh fruit and vegetable industry back on track.

“While the floods will likely lengthen the soft patch in Australian economic growth and further delay the next RBA tightening, possibly to May or June, they are unlikely to have a significant impact on growth this year as a whole, which we expect to be around 3.5 per cent over the year to the December quarter. At this stage, we still see the cash rate rising to 5.5 per cent by year end.”

source: www.theadviser.com.au

The majority of lenders have increased their rates in excess of the official cash rate, a survey from financial research firm Canstar Cannex has revealed.

Only 10 lenders out of 99 remained silent on home loan rate increases after last month’s 0.25% cash rate rise. The rest increased their rates by an average of 0.32% – meaning home owners are now paying 1.34% more on average than they were 12 months ago.

“The high profile hikes of 0.45% we saw last year from Westpac and this year from the Commonwealth Bank certainly signalled a cutting of the umbilical cord from the Reserve Bank and bumped up the average overall figures from the banking sector,” Mitchell Watson, Canstar Cannex financial analyst said.

“However, mortgage originators, building societies and credit unions all increased their rates in excess of the official cash rate.”

The Reserve Bank of Australia has decided to leave the official cash rate on hold in December. The Board was widely expected to leave the cash rate on hold at 4.75 per cent after lifting it 25 basis points last month.

RP Data’s research director, Tim Lawless said while inflation remains a concern for the Board, its rate hike last month had done enough to dampen any immediate inflationary threats. According to Mr Lawless, the RBA will be much more focused on wage pressures fuelling inflation, rather than house prices moving into the new year.

At its meeting today, the Board decided to raise the cash rate by 25 basis points to 4.75 per cent, effective 3 November 2010.

Statement by Glenn Stevens, Governor Monetary Policy RBA

The global economy grew faster than trend over the year to mid 2010. Global growth will probably ease back to about trend pace over the coming year as strong recoveries in the emerging world give way to a more sustainable pace of expansion and growth remains subdued in the United States and Europe. At the same time, concerns about the possibility of a larger than expected slowing in Chinese growth have lessened recently and most commodity prices have firmed, after a fall earlier in the year. The prices most important to Australia remain at very high levels, with the result that the terms of trade are at their highest since the early 1950s. The turmoil in financial markets earlier in the year has abated, though sentiment remains fragile.

Information on the Australian economy indicates growth around trend over the past year. Public spending was prominent in driving aggregate demand for several quarters but this impact is now lessening. While there has been a degree of caution in private spending behaviour thus far, the rise in the terms of trade, which is now boosting national income very substantially, is likely to lead to stronger private spending over the next couple of years, especially in business investment. (more…)