RBA To Hike In October, Says Merrills

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By Rudi Filapek-Vandyck

Merrill Lynch economist Stewart Ferns and equity strategist Kerry Duce have reviewed their interest rate forecasts for Australia and have come to the conclusion that the Reserve Bank of Australia (RBA) is likely to hike by another 25 basis points at its October meeting.

Forget about inflation, even though that’s what the market currently seems to be focused on. Ferns and Duce agree with the widely carried notion among economists that inflation will soon be no longer a problem. The RBA is expected to take the step to rein in credit growth in Australia.

Both believe a further 25 basis point tightening is required to slow credit growth back to its recent 2000s average growth rate.

They also see another factor playing in favour of their October hike forecast: the scheduled retirement of Ian Macfarlane as Governor on September 17.

The RBA’s October board meeting would be the first meeting for the new Governor to stamp his/her anti-inflation credentials, says Merrill Lynch. Sound familiar? The same philosophy applies to Ben Bernanke in the US.

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