With lower growth position forecast by the Federal Budget, one of the country’s largest banks – the National Australian Bank or NAB, has updated its cash rate prediction and expects the interest rates to rise only by late 2015. Till then, it expects the rates to remain at the current level of 2.5 percent. As per the research reports from NAB’s Monthly Business Survey carried out in April 2014, businesses and corporates were reacting indifferent and detached with Federal Government’s talks of a “tough budget”, and showing marginally increased confidence in market conditions.
These have caused NAB chief economist Alan Oster to predict a stagnancy in the interest rates for almost a full year. He has also cautioned market conditions are prone to volatility and mixed mood across different industry sector. Speaking to Courier-Mail, he said “They’re not going to get a cut late this year. The market’s reversed that (late 2014 rate rise position). The market’s not pricing any increases in rates until at least next year some time.”
He also emphasized that the country is passing through a period of prolonged deficit that might touch $25 billion in the 2016-2017 period, majorly due to the expenditure plans drawn up by major political parties. Commenting on strong export stance prevalent in Australia, Mr. Oster says “the domestic part of the economy is only growing at 1 per cent. So that means unemployment does not come down.”
The latest market sentiments
As per NAB’s latest June monthly report, there is increased confidence by businesses and will be certain to come out of the adverse effects of the federal budget announcement. The survey showed a marked improvement in confidence scale of businesses, where 400 companies experienced a reading of 8 as against 7 – the reading for April and May 2014.