Fed: Pollies to press RBA on timing of rate rise

AAP General News (Australia)
08-12-2009
Fed: Pollies to press RBA on timing of rate rise

By Colin Brinsden, Economics Correspondent

CANBERRA, Aug 12 AAP - Home owners may get a better idea of the odds of an increase
in mortgage rates this year when Reserve Bank of Australia (RBA) officials are grilled
by federal pollies on Friday.

Sydney's oldest sports club, Tattersalls, will host the six-monthly hearing of RBA
chief Glenn Stevens and his team before the House of Representatives Economics Committee.

But there will be nothing sporting about three hours of intense questioning from both
sides of parliament.

Financial markets have already read the latest form guide - the RBA's quarterly monetary
policy statement released last week - and are betting on at least a 25-basis-point increase
in the official cash rate before the end of the year.

Market economists believe the central bank will take a more sedate approach.

Nomura Australia chief economist Stephen Roberts expects parliamentarians will try
to pin Mr Stevens down on when rates will likely rise given the recent change in its policy
stance.

"My guess is that he will be very cagey in answering that question and will want to
leave a fair bit of flexibility," Mr Roberts told AAP.

He expects the RBA will keep the cash rate on hold until early 2010.

"That's simply because you did have 110,000-odd people who took up the (increased)
first home buyer grant. They've got whopping mortgages and are going to be highly vulnerable,"

he said.

Recent central bank commentary has dropped the prospect of a further reduction in the
cash rate, which stands at 49-year low of 3.0 per cent.

This followed a hefty 425 basis points worth of reductions between September last year
and April to fend off the impact of steep global downturn.

"The recent stronger-than-expected economic data and general improvement in sentiment
both in Australia and abroad have reduced the likelihood that a further reduction will
be required," the central bank said in its quarterly statement.

Still, whatever timetable the central bank has in mind for raising rates, that won't
necessarily stop the commercial banks from independently lifting their lending rates because
of their own high funding costs.

Fixed mortgage rates for new home buyers have already increased in line with wholesale
market rates, while the major banks are warning that variable rates will follow suit.

Commonwealth Bank of Australia boss Ralph Norris said on Wednesday the country's biggest
home loan lender will adjust mortgage rates as necessary, based on its funding costs.

"We've got to act on a commercial basis and certainly what is right for the business,
and if we need to reprice, we will reprice," Mr Norris told analysts.

Previously, the banks have copped flack from the government for raising rates out of
sync with the RBA.

But Mr Roberts didn't think the RBA would be unduly concerned if the banks lifted
their variable rates independently.

Federal Treasurer Wayne Swan has conceded that official interest rates would inevitably
rise from their historically low levels, as indicated by the central bank.

But while the recent run of economic data has been unexpectedly upbeat, the government
has stuck with the line that the economy "is not out of the woods" and that Australia
will still face rising unemployment even when the recovery proves to be more sustainable.

While the RBA upgraded its growth forecasts last week, it also expects domestic demand
will weaken in the second half of this year as the boost from the government's stimulative
cash handouts to households fades.

AAP cb/sb/jl

KEYWORD: RBA PREVIEW

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