Interest Rates – the latest info

hi everyone, i thought you might like to read this article from todays paper regarding the future direction of interest rates. personally i don’t hold too highly what most economists say but here it is anyway.
westan

Rates could ease again
By Krista Hughes
November 24, 2003
INTEREST rates could start falling again by the end of next year as the export-led economic recovery ran out of puff, according to the latest survey of Australian economists.

They predict economic growth would pick up in the next six months before losing momentum in the second half of 2004.

The Australian Business Economists poll found most regarded the higher Aussie dollar – which recently reached a fresh six-year high of more than US72¢ – as a significant risk to growth.

But the economy was still expected to expand by 3.9 per cent in 2004, from an expected 2.5 per cent in 2003, before slowing to 3 per cent in 2005.

“Although the domestic economy is expected to maintain recent strong momentum heading into 2004, the main source of the increase in growth is expected from an improvement in exports,” the economists said. “Nearly all respondents expect a slowdown in momentum during 2004, with most expecting it to be apparent by the third quarter.”

Interest rates increased this month for the first time in almost 18 months and the ABE governing committee expected the Reserve Bank to hike interest rates by another 25 basis points when it meets next week.

By June 2004, mortgage interest rates would be 7.33 per cent, adding $68 a month to repayments on a $200,000 loan, but homebuyers would not have to bear the pain for long.

“Reflecting the general view that the economy will lose momentum by mid-year, most respondents expect that the RBA (will) either hold rates flat or begin reducing interest rates by the end of 2004,” they said. The official cash rate was expected to fall from 5.5 per cent in June 2004 to 5.25 per cent in December.

Economists said risks to the economic outlook over the next two years included high household debt, the pace of the recovery in the US, overshoots in interest rates and a sharper-than-expected downturn in housing activity.

While some thought house prices were overvalued by up to 20 per cent, most thought prices would either remain stable or fall by less than 10 per cent. The jobless rate was expected to average 5.8 per cent in 2004, and rise to 6 per cent in 2005.

Inflation was expected to remain within the Reserve Bank’s target range of between two and three per cent over the next two years.

Prime Minister John Howard last week continued to push his argument that there was no case for a significant rise in interest rates, playing down concerns low unemployment could fuel wage pressures.

“You’ve got very moderate wages growth because we have high productivity and wages are very much in control and people are not making outrageous demands because they’re better off,” he told radio 3AW in Melbourne.

“Their wages are going up at a reasonable rate, their interest rates are down and they’ve got job security, that’s a pretty remarkable trifecta.”