Interest rates tipped for a substantial rise
October 18, 2004
The economic forecaster BIS Shrapnel has warned interest rates will rise substantially in the next three years while the economy heads for a downturn.
BIS
Shrapnel made the forecast in its latest Long-Term
Forecasts 2004 to 2019. The report said it was
a myth to think that Australia's moderate growth, low
inflation and low interest rates could continue forever.
Its senior economist, Matthew Hassan, said the Reserve Bank would have to increase rates between two and three percentage points in the next three years.
The expected low unemployment levels next financial year would create a skilled workers shortage, which would mean many businesses were likely to pay higher wages, he said. Higher wages would cause price rises in 2006.
"These two years of inflationary growth will be the trigger for substantial interest rate rises, with the official cash rate expected to peak at around 8 per cent in late 2006," Mr Hassan said.
BIS Shrapnel still predicts a recession in 2007-08. Its report said a business investment bust in 2007 would follow the current rush to invest to meet demand.
Economists views must be taken as an opinion only,
because economists views are sometimes off the mark.
The greater emphasis on TAFE training over the next
3 years is aimed at offsetting the rising skill shortages,
as is the skilled migrants intake.
Also, the employment market is more deregulated now
than at any time in the past. This means wage rises
are accompanied by productivity gain, therefore lowering
the pressure on inflation and interest rates.
The driver for interest rates will be more through the
impact of oil price hikes than wages. In addition if
oil prices slow the global economy this will inevitably
slow the Australian economy, thereby lowering the pressure
on interest rates.
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