Friday, August 28, 2009

An October rate hike?

Rory Robertson is giving it credence:

"The October rate-hike bandwagon now is rolling fast. Analysts quickly confirmed that October is six months after April (the month of the final rate cut), and that the RBA generally likes to leave “at least six months” between changes in the direction of policy. The next phase of speculation will involve analysts highlighting the prospect of 50bp rather than 25bp hikes, given we’re starting from an extraordinarily low 3%.

I’ve always thought the RBA before hiking would wait until full-time employment stopped shrinking. That’s not wrong yet, but the story is under serious pressure, and I’m no longer rubbishing the fast-tracking of rate-hike prospects. With momentum for an October hike building, it may now take a particularly weak August jobs report on 10 September to nip such a move in the bud. (If I’m wrong and falling full-time employment is not enough to stop an early 25bp hike, the weakness - or strength - of each subsequent jobs report will influence the speed with which further hikes towards 4-5% or higher are delivered.)

Another possibility is that the latest sharp rise in market rates – 20bp or more in parts of the curve - will prompt major lenders to “top up” their mortgage rates before any RBA move, thus delaying official action."