Market "nervous" about October rate hike, economists say
Market watch top headlines
Australian reports
- Aust markets: Aussie markets receive positive leads
- Aust dollar report: $A opens higher on firm US data
- Aust credit close: Bonds weaker after rebound
World reports
- World commodities: Oil prices climb higher
- World markets: Stocks rise on positive economic data
SYDNEY, Oct 5 AAP
October 05 2009, 4:43PM
Debt markets have sharply ramped up the chance of a interest rate hike on Tuesday, amid fears the central bank could surprise the nation by pulling its monetary policy lever a month early than expected.
The odds of a 25 basis point interest rate rise have increased to around 57 per cent, from 25 per cent on Friday, causing concern in the stock market which ended lower on Monday after being stripped of its early session gains.
Financial markets are increasingly nervous about the outcome of the Reserve Bank of Australia's (RBA) Tuesday board meeting, after a number of leading economic commentators wrote the central bank was poised to hike and further economic data indicated the economy was turning around.
While the majority of economists still expect the RBA won't move until November, CommSec chief economist Craig James said expectations of an October move have been heightened.
"I think any economist around would be increasingly nervous about their call about interest rates remaining unchanged," Mr James said on Monday.
"When you've got economic commentators ... all suggesting that rate hikes are imminent, you've got to sit up and pay attention."
Fourteen of the 16 economists surveyed by AAP last week said they expected the RBA to leave the cash rate unchanged at its current 49-year low of three per cent.
The remaining two - from JPMorgan and Royal Bank of Scotland - forecast a rise of 25 basis points to 3.25 per cent.
On Monday, Fairfax economics commentator Ross Gittins wrote there was a "high chance" of a hike on Tuesday while Australian Financial Review commentator Alan Mitchell said a rise "now seems likely".
The prospect of an October rate hike also received a boost on Monday after the latest ANZ Banking Group job advertisements survey found the total number of ads rose for a second straight month in September.
As well, the Australian Industry Group (Ai Group)/Commonwealth Bank performance of Services index recorded its strongest reading in 16 months.
The RBA has indicated through recent official statements and speeches by senior officials that the cash rate will rise from its current "emergency" setting as the economic outlook improves.
Treasurer Wayne Swan told journalists in Brisbane on Monday that RBA governor Glenn Stevens had indicated that rates would rise in the future.
"No one wants to see rates go up, but I think the governor of the Reserve Bank has made it very clear that the official cash rate is at emergency levels," Mr Swan said.
"Of course, he's made the very obvious point that at some stage in the future it will go up."
Macquarie Group interest rate strategist Rory Robertson said while the timing of the rate hike was hard to predict with any confidence, it appeared the RBA was set to lift the cash rate by 25 basis points on Tuesday.
"The strongest indication that the RBA will hike tomorrow comes from key economic journalists in this morning's newspapers," Mr Robertson said in a research note.
National Australia Bank (NAB) chief economist Alan Oster said his bank was sticking to its prediction for a November rate rise, followed by 25 basis point increases in December and January.
"The RBA is close to changing, exact timing is always somewhat of a mug's game so we always have this problem trying to figure out when," Mr Oster said on Monday.
"When you see journalists suddenly start jumping on board at the last minute, you wonder.
"You feel nervous when these guys come out like this all co-ordinated."
CommSec's Mr James said while the days of super low interest rates were indeed numbered, he did not expect the RBA to move on Tuesday.
"There is more risk for the Reserve Bank in lifting rates in October rather than holding off for another month," he said.
"In our view, we'd prefer to give the economy another month or so to reveal it's true nature before lifting rates."
By Jordan Chong
