By Swati Pandey
SYDNEY, Sept 21 (Reuters) - An Australian interest rate rise is finally emerging as a possibility next year as markets respond to a surge in employment at home, a return to synchronised growth globally and hawkishness at other major central banks.
The interbank futures market shows 0#YIB: investors are almost fully pricing in a 25-basis-point increase for June 2018, a seachange from earlier in the year when it was all the way out at mid-2019. There is also a 72 percent probability of a second hike by December next year.
The last time the Reserve Bank of Australia (RBA) raised rates, it was a quarter point increase in November 2010 to 4.75 percent. There then followed 12 successive easings, taking the cash rate to a record low of 1.50 percent.
Two of Australia's biggest lenders - ANZ Banking Group and National Australia Bank - recently predicted the RBA will lift rates by 50 basis points in the second half of next year.
That is a radical shift from earlier this month when both the banks had forecast steady rates until March 2019.
The change "is based on a realistic assessment of the better-than-expected business investment and employment data," said Michael Workman, economist at Commonwealth Bank which sees one rate hike late next year.
"Australia's interest rate settings are not done in isolation. The health of the global economy is an important influence on the RBA's views about the most likely path of domestic growth and inflation."
While the RBA has turned more upbeat about the domestic economy in recent weeks, it has shown no inclination towards raising rates as inflation is still below its 2-3 percent target band. In fact, it has gone out of its way to say it does not have to follow other central banks. an encouraging expansion in Australia's jobs since the beginning of this year has lifted sentiment. Corporate profits have also surged while measures of business conditions and confidence are the strongest since 2008. addition, the global economy has been recovering since late last year in the first synchronised growth in nearly a decade. A pick up in activity elsewhere bodes well for commodity prices, which helps export-driven Australia. global economy is looking better than it did a year ago. While it doesn't seem to have picked up further recently, neither is this expansion a flash in the pan," Luci Ellis, head of economics at the RBA said in a speech on Wednesday.
"That is positive news for the Australian economy, too."
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Interbank futures signalling rate rise ahead
http://reut.rs/2jKpFzQ Global GDP growth
http://reut.rs/2xTuNbj Australia's employment has surged this year
http://reut.rs/2jKqcBQ CPI and policy rates
http://reut.rs/2jNlYJS
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>