It would seem predictions of an interest rate drop come the middle of 2007 have been dashed and according to Reserve Bank chief Glenn Stevens more pain could be on the way for homeowners.
The RBA governor said in Perth yesterday that rates were "more likely" to increase than be cut.
“It’s too soon to declare victory on inflation," Stevens stated at a parliamentary committee hearing in Perth.
“There are still some forces that give us pause for thought,” he declared.
Stevens warned that wages and producer prices were being watched carefully by the RBA.
Last year, the RBA raised interest rates on three consecutive occasions to rein in inflation.
“A wide array of business enterprises the bank talks to have been saying for some time that it is harder and more costly to find appropriate staff,” Stevens said.
“The apparent softening in underlying inflation in the December quarter was certainly very welcome, but it is not as yet clear to what extend it signals a persistent, as opposed to a temporary, phenomenon.
“The likelihood that you get some surprising set of events that takes inflation above the central bank’s target is higher than the likelihood you would get a set of events that takes us below,” Stevens added.
“So it follows, more or less axiomatically that, as a statement of probability, a rise is more likely than a fall in interest rates,” Stevens concluded.
However, JP Morgan economist Jarrod Kerr stated yesterday: "We don’t see rates rising anytime soon unless we see a significant acceleration in wage inflation.”
BT Funds Management’s chief economist Dr Chris Caton earlier said any movement would be upward rather than down, as a drop in rates generally only occurs during weak economic times.
Australian Property Journal
