When will interest rates rise?

We believe the financial markets have gone too far by pricing in a strong possibility that the Reserve Bank of Australia will raise interest rates twice next year, from 1.5% to 2.0%. Economic conditions won’t be good enough to warrant higher rates and high household debt will force the RBA to be cautious. The Australian dollar may therefore weaken from US$0.78 now to about US$0.70 next year.

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