Fed: Mortgage rates could be over eight per cent in 2011

AAP General News (Australia)
12-08-2009
Fed: Mortgage rates could be over eight per cent in 2011

By Colin Brinsden, Economics Correspondent

CANBERRA, Dec 8 AAP - Homeowners could face mortgage rates of over eight per cent in
two years time based on economists' predictions on the outlook for the Reserve Bank of
Australia's (RBA) cash rate.

New data released on Tuesday suggests economic growth will be fairly limp when the
national accounts are released next week due to exports making a major subtraction from
gross domestic product (GDP).

The Australian Business Economists (ABE) group released its annual forecasts on Tuesday,
predicting a RBA cash rate of 4.75 per cent in 2010 and 5.5 per cent in 2011.

The cash rate stands at 3.75 per cent after the central bank raised it by a further
25 basis points last week, an unprecedented third increase in as many months.

The average standard variable mortgage rate - after a range of responses to the RBA's
latest decision from the four major banks - was around 6.6 per cent.

"A few committee members felt that a higher cash rate was appropriate," ABE chairman
Stephen Halmarick said in releasing the survey.

"Those that believed this were the ones that generally had a higher median forecast
for economic growth and/or inflation in 2011."

ABE's median forecast for GDP in 2009 was 1.2 per cent, rising to 2.6 per cent in 2010,
followed by 3.5 per cent in 2011.

Inflation is expected to return to the RBA's two to three per cent target next year
- being currently below the band.

Still, their growth forecasts could be becoming off a lower base, particularly with
the September quarter GDP likely to show only a modest rise.

Economists were cutting back their expectations for next week's GDP report after the
balance of payments for the three months to September showed exports will cut a hefty
1.8 percentage points from growth.

A milder 0.3 percentage point subtraction was forecast.

The report showed the current account deficit widened to a seasonally-adjusted $16.18
billion from a revised $13.13 billion in the previous quarter.

Treasurer Wayne Swan said the figures reflected the continuing effects of the global
recession, with record falls in export prices over the past year "impacting heavily" on
the economy.

Export prices fell by a further 1.8 per cent in the September quarter, taking the fall
during the past year to 19.5 per cent.

"This is the largest through-the-year fall in export prices in the history of the series
dating back to 1959," Mr Swan said in a statement.

Commonwealth Bank of Australia economist economist James McIntyre said the data release
was a "poor one" for the September quarter GDP outlook.

"On the back of the worse than expected net exports contribution to GDP we have reduced
our (September quarter) GDP forecast to 0.3 per cent, taking annual growth to 0.6 per
cent," he said.

In contrast, the National Australia Bank's (NAB) latest monthly business survey showed
confidence continued to grow, increasing to a seven-year high in November, despite rising
interest rates.

Business conditions, however, fell slightly in the month.

NAB chief economist Alan Oster said the economy continued to show significant momentum,
with forward orders rising to a two-year high.

"Confidence also continues to build and forward orders are now at their highest level
since late 2007," Mr Oster said in releasing the data.

"All of this is truly a remarkable outcome and one that continues to surprise."

AAP cb/sb/mn

KEYWORD: ECONOMY WRAP

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