Westpac: Two More Rate Hikes From RBA Likely By Year-End

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Tuesday, Westpac Banking Corporation said in a report that it expects two more rate hikes following the November and December monetary policy meetings from the Reserve Bank of Australia, and also did not rule out a 50 basis points rate hike in the next meeting.

Commenting on the board minutes of the October 6 meeting released earlier in the day, Westpac said that the RBA's focus has returned to inflation and also took note of what it perceived to be greater anxiousness on the central bank's part on meeting inflation targets going into 2010.

Westpac pointed out that the minutes showed a greater degree of concern about inflation than the Governor's original statement. The statement had simply referred to inflation as being "close to target", while the minutes said, "while current forecasts suggested it would fall in the coming year, the expected trough in inflation was significantly higher than earlier thought" and "by 2011 inflation could be rising again".

Inflation data for the September quarter is due on October 28, and the firm said that an underlying inflation rate of 0.8% quarter-on-quarter or above will be in line with a 50 basis points rate hike in the November meeting.

The minutes noted that repayments on home loans had risen implying that households had been opting to maintain previously high interest payments. The minutes said "this would reduce the vulnerability of that part of the household sector to rising mortgage rates". Further, the surging rise in house prices was cited, with the minutes noting that dwelling prices had exceeded earlier peaks recorded in late 2007 and early 2008.

Westpac commented on the more hawkish tone of the minutes compared to the statement. The statement had said that it was "prudent to begin gradually lessening stimulus", while the minutes argued that the "current very expansionary setting of policy was no longer necessary, and possibly imprudent". The firm said that the absence of the word "gradual" in the minutes intimates a stronger sentiment than in the statement.

Tuesday, Westpac Banking Corporation said in a report that it expects two more rate hikes following the November and December monetary policy meetings from the Reserve Bank of Australia, and also did not rule out a 50 basis points rate hike in the next meeting. (Market News Provided by RTTNews)