Cash Rate
The RBA's minutes were released yesterday for the October 6 Board meeting. This
was the meeting where the RBA raised interest rates by 25bp to take the cash
rate to 3.25%. It was the first interest rate hike since March last year (where
rates were taken up to 7.25%). The language of this month's minutes carried a
relatively upbeat tone. The minutes note that the economy is "continuing to
expand", that growth is expected to be "around trend in 2010" and further
"strengthen somewhat" beyond that. The RBA also notes that the IMF expects
growth in Australia's major trading partners to be close to trend in 2010.
These references suggest that the RBA will be keen to gradually take the cash
rate back closer towards a more neutral setting. For this reason, our
projection is that the cash rate will stand at 5.00% by the end of next year.
In the near term, we expect two more interest rate hikes before Christmas,
taking the cash rate to 3.75%.
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