Thursday, May 26, 2011

OECD: You're set for recovery alright, and higher rates

Rapidly accelerating inflation and economic growth will bring on two more rate rises in the year ahead according to the Organisation for Economic Co-operation and Development, enough to push up the cost of repaying a typical $100 per month.

The OECD’s annual forecasts released overnight in Paris pencil in a professional short-term rate of 5.6 per cent by March 2012, some 0.5 percentage points above where it is at the moment.

If fully passed on it would push up the price of a standard Commonwealth Bank variable mortgage to 8.31 per cent and the price of a standard National Australia Bank mortgage to 8.17 per cent.

Repayments on a $300,000 mortgage would climb from $2250 to $2349 per month.

The OECD says Australia’s economy is “set to rebound” after natural disasters with economic growth soaring from 2.9 per cent this year to 4.5 per cent in 2012...

Economic growth throughout the OECD should reach 3 per cent and economic growth in the United States 3.3 per cent.

Australian inflation should climbiwell above to Reserve Bank’s target band to 3.4 per cent this year before being brought back to 2.5 per cent next year by higher interest rates.

The organisation says while the Reserve Bank’s current interest rate stance “seems appropriate” there is a risk of inflationary pressure from the mining-driven acceleration in economic growth as the year develops.

Welcoming the spending restraint in the May budget it calls on the Australian government to go further and “take advantage of the favourable economic situation to pursue long-term structural reforms, including those that favour output involving less carbon emissions.”

The OECD’s words often reflect the thinking of the Australian Treasury which has an officer stationed at the organisation’s Paris headquarters.

Treasurer Wayne Swan labelled the forecasts “a strong endorsement” saying while the global outlook remained fragile the Australian forecasts provided reasons to “remain confident about the strength and future health of the Australian economy”.

The forecasts provide no clear guidance as to whether the Australian budget will return to surplus in the financial year 2012-13 as promised, predicting a small deficit in the calendar year 2012, the furthest year out it forecasts.

Published in today's SMH

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