Australia | Aug 02 2007
By Rudi Filapek-Vandyck
Interest rates are likely to go higher in Australia and the Reserve Bank of Australia is widely tipped (though not by everyone) to add another 25 basis points to the official cash rate at its upcoming August meeting. But will the RBA refrain from doing so in the light of the global risk reversal?
TD Waterhouse global strategist Stephen Koukoulas is of the view that higher rates are still on the cards, unless, of course, a more serious “capitulation” in global markets would occur over the next few days, but it will have to be more serious than what we’ve seen thus far.
There is no proof whatsoever that Australian consumers have been impacted by the recent market developments, Koukoulas states, in addition the domestic economy in Australia still looks to be very strong while inflation pressures have not only been confirmed with the release on the June quarter CPI last week, but there is “more on the way of growth stimulants in the months ahead”.
Note the range of extra government spending in the lead into the election, Koukoulas says, adding further factors in favour of the next RBA move are a run of strong data on consumer spending, housing starts, house prices, credit, business confidence, consumer sentiment and business investment.
Koukoulas makes a few points about the financial markets that are worth repeating:
On Wednesday the ASX 200 landed back to the level of April 2007 (described as “no big deal”) and the index is still 120% above the level of early 2003.
Also the US S&P 500 is also back to the level of April 2007 (similarly described as “no big deal”) and remains 80% above the level of early 2003.
Koukoulas also points out that recent market moves can easily be seen as a long-overdue re-pricing of risk that many central bankers, including RBA Governor Glenn Stevens, “have been banging on about for several years”.