RBA To Tighten Twice More, Says Westpac

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By Rudi Filapek-Vandyck

Economists at Westpac have raised their forecast for the peak in the Reserve Bank’s cash rate in this rate hike cycle to 7%.

The RBA cash rate currently stands at 6.5% and Westpac previously expected the cash rate would reach 6.75% near the end of 2007 after which official interest rates in Australia would remain steady throughout 2008.

The economists have now revised their view and believe official interest rates in Australia will be tightened to “at least 7%”, probably by the first quarter of 2008.

Economists at Citi expressed a similar view on Friday last week.

Westpac economists believe inflation data to be released on October 24 are likely to become the catalyst for the first RBA rate increase in either November or December. However, even if these inflation data will turn out milder than expected, the economists state they will continue to expect two more rate hikes to take the RBA cash rate to 7%.

Under the milder short term inflation scenario the economists believe the RBA cash rate 7% target will be reached in the second quarter of 2008.

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