Slowing growth points to rate hike in second half of 2011

Australia's slowing economic growth means that interest rates are unlikely to rise until the second half of 2011, new research has found.

According to the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, the annualised growth rate was 3.5 per cent in November 2010, remaining just above the long term trend of 3.2 per cent.

Westpac chief economist Bill Evans noted that the growth rate of the index has continued to slow following a peak in the first quarter of 2010.

"The exogenous shock from the floods will distort the 'around trend' growth profile in 2011 for the Australian economy with growth falling well below trend in the first quarter and pitching above trend in the second half as the economy receives a boost from the rebuilding program," he added.

Mr Evans stated that Westpac does not expect to see the next official interest rate hike until the September quarter of 2011, with stronger growth prospects in the second half of the year boosted by the flood rebuilding program, thereby increasing "upside rate risks".

This article is brought to you by Mozo – Helping you compare interest ratesADNFCR-1761-ID-800369513-ADNFCR