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ISCOVER
By: Jessica Darnbrough
The RBA has warned it will not hesitate to raise the official cash rate during the height of the election campaign if inflation remains high.
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In the RBA board minutes released yesterday, Glenn Stevens issued an unusually explicit warning that a high inflation reading for the June quarter next Wednesday might convince the board to raise rates at the next meeting.
“The important question for the board at its next meeting would be whether the new information materially changed the medium-term outlook for inflation,” the minutes read.
According to Mr Stevens, the coming month would see important announcements about the health of the European banking sector, which had the potential to have a significant impact on financial markets and global confidence.
There will also be an updated reading on domestic prices, which is expected to show further moderation in the year-ended underlying rate, although underlying inflation is likely to remain in the top half of the target range over the period ahead.
If this pans out, the RBA may be forced to hike the cash rate in order to get underlying inflation back under control.
However, any increase to the official cash rate would not come as a complete shock to the industry, with many economists predicting the RBA would raise rates in August.
AMP chief economist Shane Oliver told The Adviser last month that he expects the RBA to lift rates during the third quarter.
“The RBA will lift the official cash rate sometime over the next quarter, and could very well lift in August,” he said.
“Originally I had expected rates to hit 5 per cent by the end of the year, but we have now revised this forecast down to 4.75 per cent.”
