HSBC Predicts Five Rate Hikes By The End Of 2011

HSBC Predicts Five Rate Hikes By The End Of 2011

Global banking giant HSBC has upgraded its Australian economic growth forecast, but also says it expects that interest rates will rise by at least 100 basis points during 2011.

On Tuesday the banking giant predicted that the Australian economy would expand by as much as 4.1 per cent during 2011.

Despite the optimistic outlook for the economy, the buoyant outlook was tempered by the prediction that interest rates may have to be raised by 100 basis points to keep inflation under control.

HSBC’s growth forecast exceeds many of the official predictions, which have the economy pegged at growing between 3 and 3.5 per cent.

Paul Bloxham an economist with HSBC said that economic expansion in Australia would primarily be driven by a booming resources sector, which was set to deliver Australia a revenue or income windfall.

“It’s been clear for a while that while Australia weathered the global financial crisis better than most, but the economy’s resilience continues to surprise. Global fears of a double dip notwithstanding, there are few clouds on the Australian horizon. The economy is benefiting from soaring structural demand for raw materials. For the resources sector, things look resplendent with commodity prices around historic highs and very strong investment in the mining sector expected over the next couple of years.” Mr. Bloxham said

HSBC is forecasting that the central bank will undertake on 25 basis point rate hike before the end of 2010, and a further four rate hikes of 25 basis points during 2011, which would mean official interest rates by the end of next year would be at 5.75 per cent.