Australia | Jul 11 2006
By Rudi Filapek-Vandyck
Australian property owners better prepare for two more rate hikes this year. At least that is the conclusion TD Waterhouse economist Stephen Koukoulas has drawn from today’s economic data.
The fact that the number of housing finance loans for owner occupation rose a hefty 4.7% in May has particularly caught the attention of the economist.
Koukoulas: "The rise in lending for investment purposes fits with evidence of extreme tightness in the house rental market and a sharp jump in rents. If these trends gain further traction over the next year, the inflation consequences will be particularly severe when the CPI is already tracking well above the top end of the RBA’s band of 3%."
All up, there seems little doubt that the RBA needs to hike rates again in the months ahead, Koukoulas argues, adding Australia’s inflation rate is set for a protracted period above 3%. Whether it reaches 4% he believes will depend on the RBA’s actions and "the extent of the inflationary impact of the tax cuts and fiscal policy easing that is boosting domestic demand".
Koukoulas suggests it has become a near certainty the RBA will hike rates in August by another 25 basis points.
He adds he is tempted to pencil in a further hike by December "especially if wages growth picks up, consumer spend their tax cuts and housing activity keeps expanding".
If true that would take the official cash rate in Australia to 6.25% by year end.