Pundits firm on rate expectations

Published in the Herald Sun, September 2010 by Karina Barrymore and Rachel Hewitt

Mortgage broker

Will rates rise? No.

Should rates rise? No.

Loan market chief operating officer Dean Rushton says there shouldn't be a rate rise, either by the RBA or unofficially by the banks.

However, he thinks both will still do so but not until next year.

"Rates are already biting credit approvals and large segments of the retail sector and there are no signs of any improvements in these areas," Mr Rushton says.

"Our view is that rates should stay on hold or the RBA risks further fallout from already stressed consumers and home owners."

Share analyst

Will rates rise? No.
Should rates rise? No.

Wise-owl Equities analyst Tim Morris thinks interest rates will stay where they are until next year and adds that he doesn't think there should be a rise anyway.

"Inflation is the primary driver of interest rate decisions and while inflation is hovering towards the top end of the RBA's target band of 2-3 per cent, it is likely to delay any further rises for as long as possible, given the tentative nature of the global economic recovery," Mr Morris says.

"Australia's economic growth is close to trend and interest rates are around average levels, so the status quo appears fine."

Accountant

Will rates rise? Yes.
Should rates rise? No.

Chan & Naylor director Ken Raiss says it's likely there will be an interest rate rise as soon as October.

"We place the odds in favour of an October rate rise at about 60 per cent," Mr Raiss says.

"However, we believe a rate rise is unjustified at this point. Inflation is on target and house prices have moderated significantly. The strong Aussie dollar will weaken export demand and the domestic economy and small to medium businesses are still doing it very tough."

Superannuation trustee

Will rates rise? No.
Should rates rise? No.

The RBA and banks should keep their fingers off the trigger, Australian Institute of Superannuation Trustees chief executive Fiona Reynolds says.

"The lead-up to Christmas is an important time for many businesses, particularly retailers and small businesses," Ms Reynolds says.

"Now is not the time for an interest rate rise. We need economic stability after a period of political uncertainty. There is still a great deal of uncertainty across international markets, so it's probably premature for the RBA to raise rates again at this point."

"Voluntary superannuation contributions were down last financial year and any interest rate hike will likely further affect the number of people able to make voluntary contributions to their super."

Fund manager

Will rates rise? Yes.
Should rates rise? No.

Fund manager and investment analyst at Wealth Within, Dale Gillham, says interest rates should not be raised but that, yes, they probably will by both the RBA and an extra slug from the banks.

Banks and other lenders are still being charged high rates to borrow money from overseas so an independent rate rise from lenders is a real possibility, Mr Gillham says.

Overall, Mr Gillham says, Australia has split in two, with the "haves" being everyone associated with the resources sector and the "have nots" being everyone else.

"The challenge is that you can't have one interest rate for the part of the economy that is doing well and another for the part that is not doing so well," he says.

AMP Capital Investments economist

Will rates rise? Yes.
Should rates rise? Yes.

AMP Capital Investments' chief economist Shane Oliver believes rates will go up and says this is the right move.

"The Australian economy does seem to have a reasonable head of steam up, particularly supported by very high commodity prices," Dr Oliver says.

"If the RBA doesn't continue to keep it under control then the risk is we could end up overheating with inflation picking up and bigger problems down the track. So, on balance, it is appropriate for the RBA to tap the brakes a bit again."

NAB economist

Will rates rise? Yes.
Should rates rise? No.

Alan Oster, group chief economist at National Australia Bank, says the RBA has more time up its sleeve and should keep rates on hold for now.

"We still think there's a bit of uncertainty out there (in) consumer land and they could sit back and wait a month or two and then make a decision," he says.

"I actually think the consumer is a bit weaker than what the official data seems to be suggesting."

But after this week's hawkish commentary from the RBA, Mr Oster expects a rate rise nevertheless.

JP Morgan economist

Will rates rise? No.
Should rates rise? No.

JP Morgan's Helen Kevans expects rates to stay on hold in October and says this would be the right outcome.

Ms Kevans believes the RBA won't hike until November because of continued concerns about the global economy.

"We think the RBA still needs to get a bit more certainty about how things are holding up on the global front," she says.

Ms Kevans says that if the global picture "hadn't deteriorated as much as it has over the last month or so", the RBA probably would have hiked rates this month because of the strength of Australia's economy.

Westpac economist

Will rates rise? Yes.
Should rates rise? No.

Westpac's Bill Evans says it's "pretty clear" the RBA has opted to raise rates, but he believes it would be better to hold off until early next year

"I think I would have waited and given the consumer part of the economy the opportunity to gather a bit more momentum," he says.

"I'm still quite concerned about the very weak credit numbers and what appears to be a structural change in the way consumers are behaving."

Mr Evans says he doesn't see the "huge inflation risks" associated with Australia's mining boom that are worrying the RBA.