Futures traders tip cash rate to rise

Staff Reporter Tuesday, 26 May 2009 2 minute read

Interest rates could be on their way up in just 12 months according to local futures markets.

Traders are raising their bets that the Reserve Bank will move to tighten monetary policy with contracts for a rate rise in the futures market running at their highest in 10 months, according to The Australian Financial Review.

But while traders may speculate on a turn in the interest rate cycle, economic forecasters maintain that in the short term interest rates have further to fall.

Just last week Westpac chief economist Bill Evans said the prospect of further rate cuts had increased off the back of the federal budget and its sizeable deficit.

Mr Evans said the sharp increase in national debt would constrain the government’s ability to implement further stimulus measures, leaving the stimulus ball in the RBA’s court.

“... [monetary policy] will need to be seen to be responding when the unemployment tracks from 5.5 per cent to 8.25 per cent over the course of the next 12 months,” he said.

Westpac expects the cash rate to fall by a further 100 basis points before the year is out.

NAB also expects further rate cuts from the RBA in a bid to be seen as responding to rising unemployment and further falls in GDP.

Its latest forecast has the cash rate bottoming out at 2.5 per cent in December.