Despite the Reserve Bank’s protestations of steady monetary policy while they assess inflation rates, most Australian households expect interest rates to rise even higher within the next twelve months.

The corresponding sub-index of the Westpac-Melbourne Institute consumer sentiment survey for June showed that roughly 90% of all Australians surveyed expect higher interest rates prior to June 2011. Only 7% forecast steady rates over the twelve months, and 3% forecast rates to fall.

At the June rate-setting meeting, the RBA kept the overnight cash rate steady at 4.5%. By clearly signalling their intention to await consumer and producer price index data for the June quarter before considering another rate rise, the central bankers indicated rates are likely to remain on hold at July’s meeting, as well.

But it seems Australian homeowners don’t believe this state of affairs will last very long.

Matthew Hassan, senior economist for Westpac, said that current consumer expectations are for an increase of 85 basis points during the next twelve months. That would drive the standard variable mortgage rate during that time frame to 8.25% from the current 7.4%, higher than the 15-year average of 7.5%.

In the February Westpac-MI survey, 61% of respondents expected interest rates to increase by more than a full percentage point before February 2011. In the June survey, after an increase of 1.5%, 46% of Australians surveyed still expect rates to rise by another full percentage point before June 2011.

Financial markets disagree, with current pricing pointing toward only one more 25 basis point increase in the overnight cash rate before June 2011. Westpac analysts predict three such increases, for a cash rate of 5.25% before that date.

Source: http://au.ibtimes.com/