Rates likely to rise in February

Sep 30 2019 Published by under 苏州半永久

The board of the central bank meets to discuss monetary policy in Sydney on Tuesday, and its decision will be announced on Wednesday.


A clear majority of 19 economists surveyed by AAP believe the RBA will wait until after the release of December quarter consumer price index (CPI) data in January 2008 before tightening monetary policy in February.

The board does not meet in January.

Rate hike expected

Some 16 economists expect the RBA to hike rates by a quarter of a percentage point to seven per cent in February, while five expect to see another rise by the end of the June quarter to 7.25 per cent.

Westpac senior economist Andrew Hanlan says inflationary pressures were still evident in the economy, adding weight to the case for further rate hikes.

“The risk is the interest rate rises to date will be insufficient to temper those pressures,” Mr Hanlan says.

The central bank has already lifted the key cash rate twice in 2007, with last move in November to 6.75 per cent from 6.50 per cent.

Credit market fears

Mr Hanlan believes the RBA will raise interest rates in February and tighten further in the June quarter.

He says ongoing concerns about conditions in global credit markets, the US housing market slowdown and the state of the global economy could delay action by the RBA.

But the risks to domestic inflation remain firmly on the upside.


“Core inflation in the last couple of quarters has been running at a 3.7 per cent annualised pace … and we think the risk is we'll seen another unacceptably high number released in January, thus forcing the Reserve Bank to act in February,” he says.

“We're expecting the CPI result next quarter will again force the RBA's hand.”

The RBA has said underlying inflation is likely to exceed the top end of its two and three per cent comfort band in 2008.

Effects of drought

JPMorgan chief economist Stephen Walters, who has also forecast a February rate rise, agrees that underlying inflation is set to worsen as the drought pushes up food prices, energy costs increase and rents continue to advance.

“Seven out of 10 of the top CPI items are going up,” he says.

“In our view, that means inflation is going to be above the (RBA's) target range for the next couple of quarters.

“During the past 18 months, when inflation has threatened the top of the target range, the RBA has raised interest rates.”

Brakes ‘on inflation’

But Grange Securities chief economist Stephen Roberts, who sees interest rates staying on hold through to the second half of 2008, said the global credit crunch would push up retail lending rates, helping to put a brake on inflation.

“The credit crunch is doing the work of the Reserve Bank,” he says.

Mr Roberts sees underlying inflation likely falling below three per cent in the second half of 2008, as global economic growth slows.

“Since November, the downside risk to global economic growth has become more pronounced,” he says.

Spending cut ‘likely’

“That will keep rates on hold.

“Inflation will be coming down in 2008 and 2009.”

Mr Roberts added that the incoming federal Labor government was likely to cut spending.

“It looks like the new Labor government is going to be intent on not adding pressure to interest rates,” he says.

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