Australia | Jul 17 2006
By Greg Peel
National Australia Bank chief economist Alan Oster had given an August rate rise no more than a 50/50 chance in his survey last month. While the petrol price may be under even greater threat now, Oster cites the June monthly labour market result as having improved the odds.
NAB is now calling a rate rise in August unless, by some miracle, the June CPI figure is less than expected. Oster expects a 1.7% June CPI figure taking annual up to 3.7%.
Despite the May rise, NAB’s June Business Survey found still reasonable economic growth, a tight labour market and high levels of capacity utilisation. Add to that accelerated construction activity and continuing strength in mining and service sectors. It appears, furthermore, that NSW house prices may have bottomed out.
So things still seem to be humming along, and the effects of the Budget are yet to be felt. All this points to possibly another rate rise, but NAB believes it is last week’s surprisingly strong employment estimates that tip the balance. Another pre-emptive move by the RBA would make sense unless, as mentioned, the CPI figure surprises or perhaps the worsening geopolitical situation dictates that a rise now would hit an economy under threat.
So up again by 25bps in August, but that’s it, says Oster. The RBA is unlikely to risk yet another rise in 2006 lest it kill off 2007 prospects altogether. The market, feeling pretty spooked by oil prices at the moment, is pushing for another rise, factoring in a 50/50 chance of two rises including August.
Oster points out that RBA policy later in the year is targeted at 2007. The RBA will likely stick to the policy of allowing changes to have some time to take effect.