Low inflation, will the big four hike interest rates anyway

Surprisingly low inflation has quelled concerns that the RBA may lift rates next week.

According to the Australian Bureau of Statistics, underlying inflation for the year to September eased to a five year low of 2.4 per cent – dropping to the bottom half of the RBA’s 2 to 3 per cent target band.

The results would leave the big four banks, who have been posturing about out of cycle rate hikes for some time, between a rock and a hard place. Hopefully they will pull their heads in.

With inflation figures coming in a little lower than predicted, there’s less likelihood of the RBA raising rates when it meets next week.  This will leave the major banks in a difficult position as they have been signalling an out of cycle rate rise for some time, despite increasing political pressure not to do so.  Clearly there will be major political ramifications if they move outside the RBA cycle.

Earlier this month both CBA’s Ralph Norris and Westpac’s Gail Kelly said out of cycle rate hikes were almost “inevitable”.

I guess making over for billion dollars net profit is not enough for some banks. The interesting thing is which bank will stick their neck out first. My prediction will be the CBA as Westpac has already moved out of cycle earlier this year. they all seem to take it in turns.



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