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The Reserve Bank will lift the official cash rate (OCR) in October, according to the latest weekly snapshot from Victoria University’s prediction website iPredict.
With growth and inflation expectations rising, the market now expects Reserve Bank Governor Alan Bollard to increase the OCR earlier than previously indicated.
The OCR is predicted to remain at 2.50% until October when there will be an increase to 2.75%, where it will remain until January next year, when it is expected to rise to 3.00%, and then to 3.25% in March.
As a result there is an 84% probability that average floating-rate mortgages will reach
6.00% by the end of the year, up from a 74% probability last week.
Expectations for GDP growth have marginally improved following last week's announcement of 0.8% GDP growth for the March quarter.
Growth over the next four quarters is expected to be 0.6% for the June quarter (steady), 0.8% for the September quarter (up from 0.7% last week), 0.7% for the December quarter (steady) and 0.6% for the March 2012 quarter.
Inflation expectations have increased following this week's announcement of an annual inflation rate of 5.3% for the June quarter.
Annual inflation is expected to be 5.0% in the September 2011 quarter (up from 4.7% last week), 2.9% in the December 2011 quarter (up from 2.6% last week) and 2.6% in the
March 2012 quarter (down from 2.7% last week).
Forecast unemployment has also improved.
Unemployment is expected to be 6.4% in the June 2011 quarter (down from 6.6% last week), 6.4% in the September 2011 quarter (steady), 6.1% in the December 2011 quarter (down from 6.2% last week) and 6.2% in the March 2012 quarter (down from 6.3% last week).