Will the Queensland Flood Freeze Interest Rate Rises?
Queensland Flood Devastation May Stop Rate Rises
A lot of eyes are currently on the Reserve Bank after the Queensland flood hit Australia. Experts are now left wondering whether the rates will freeze. One thing is for certain if you believe some experts – they are hardly likely to increase. As chief economist, Stephen Walters, states:
“It is unlikely that the RBA board will kick Queensland while it is down with a rate increase. Would America have raised the interest rates during Hurricane Katrina? Probably not.”
The board was originally due to meet up on February 1st and it was a high possibility that the interest rates would have been increased. Now after this recent tragedy, speculation as to whether the rates will freeze is ripe.
However, not everyone agrees with this. Roland Randell from TD Securities claims that the flood will not influence the board. He states:
“While the personal tragic cost of the floods is obviously very great, when you see the economic impact at national level, the problem is actually quite small.”
Mr Randell claims that the board cannot set regional policies. Instead they have to look at how the flood affects the economy on a national level. If the effect is quite small then the interest rates could in fact still rise when they meet in February. Mr Randell thinks that the rise will take place between March and May.
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One concern is that the crops have been damaged and this will cause a spike in food prices. The coal industry in Australia has also currently practically shut down. This is a worry as it provides around 50% of the world’s coal supply.
Mr McGauchie, the chairman of chemical giant Nufarm, claims that it is too early to assess the damage. There are still even more flood warnings in place throughout Queensland. There is a risk that due to a lack of skills and capacity shortages, it could cause the rate to increase.
Why Some Experts Predict a Rise
The main reason why many experts are predicting that the rates will rise is because of the effect on the economy. It is thought that inflation rose above the RBA target in December. Unfortunately inflation could push a rise in interest.
The cost of imported goods will also influence the decision. At the moment the price of imported goods is declining far too slowly. The impact on wages as Queensland rebuilds is also a problem. Mr Bloxham, a former economist with the Reserve Bank is predicting that the rates will also rise in the second quarter. He states:
“The price of food will increase due to the flood. This is against the backdrop of the food markets that are already quite tight. However the more important issue is that the labour market is already around full employment. Any additional expense on repair and reconstruction will put further pressure on wages and cause inflation.”
Many experts are uncertain as to when the increase will be made. However, there is no question in their minds that there will be an increase. For Australian residents this isn’t good news. It is kicking them while they are down and there is no doubt that the Reserve Bank will want to try and avoid a rate as much as possible.
Only time will tell whether there will be an increase. With conflicting opinions it is difficult for residents to know what to believe. However, with most of the evidence pointing to an increase due to inflation, residents should expect the worst.
Related posts:
- Queensland Flood Home Devastation
- Property Investors Escape Flood Devastation
- Four Tips to Survive Interest Rate Rises
- Smart Ways to Beat Rate Rises and Mortgage Stress
- Interest Rates Rise to Pause
- Should I Fix My Home Loan Interest Rate
- Guide to Interest Rates
- Don’t Get Caught Out With Interest Rates Increases
- The RBA Exchange Rate
- Fixing Home Loan Interest Rate-Is it worth it?
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