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ISCOVER
Staff Reporter
The Reserve bank has made it clear it will lift rates sooner rather than later, after lifting its inflation forecasts for the next two years.
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While the RBA rightly kept the cash rate on hold at 4.75 per cent in May, the tone in governor Glenn Steven’s monetary statement was slightly more hawkish than it has been in the past.
In his statement, Mr Stevens made reference to the higher than assumed terms of trade, implying the RBA retains its bias towards lifting interest rates.
More explicitly, Mr Stevens said tightening will be required 'at some point' for inflation to remain on target. So the game is on.
But the burning question that must now be answered is when. When will the RBA react to inflationary pressures and lift the cash rate?
The general consensus among economists is August.
With the strong Australian dollar becoming an increasing constraint on the economy and inflation, AMP chief economist Shane Oliver said it is hard to see the RBA acting on its tightening bias before August.
"I think home owners can breathe a sigh of relief for the next few months at least," he said.
HSBC chief economist Paul Bloxham agrees and says the federal government’s budget, released tonight, should keep the rate issue on the back-burner until mid-Q3.
