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Problems abroad appear to have had little impact on the Reserve Bank and its rate decisions
RECENT DEVELOPMENTS in Japan, the Middle East and Portugal appear to have had little impact on Australia’s monetary policy, with the RBA deciding to leave the cash rate on hold in April.
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Last month, Portugal became the third European country to seek a bailout as its bond yields continue to rocket.
Meanwhile, world oil prices have moved higher as the conflict in Libya continues and the US dollar continues to fall.
According to AMP chief economist Shane Oliver, tapis crude rose to nearly US$129 a barrel, which if sustained will push average Australian petrol prices up to around $1.50 a litre over the next few weeks.
Fortunately, the strength of the Australian dollar is continuing to provide a partial buffer for Australian motorists.
The dollar continues to soar to new heights on the back of further strength in commodity prices and high Australian interest rates relative to those in the US and elsewhere.
Economists are now predicting the Australian dollar will surge to US$1.10 before year’s end.
But despite the inflated dollar, economists seem to believe there is little chance of the Reserve Bank moving on rates before July.
Westpac’s chief executive Gail Kelly is a little less bullish about rates and believes the RBA won’t move until at least September.
Speaking at an Australia-Israel Chamber of Commerce lunch in Melbourne last month, Ms Kelly said the economy was performing well overall, with inflationary pressure arising from a number of strongly performing sectors, including resources.
However, exports and tourism were suffering due to the high dollar, and this had combined with a spate of natural disasters to depress consumer and business confidence.
“So interest rates have been on hold for a period of time and I’d expect them to continue to be on hold, at least for the next several months,” she said.
“Possibly around September time I would see the potential for another interest rate change, but I think that will be 25 basis points up.”
HSBC chief economist Paul Bloxham agreed with Ms Kelly and said inflationary pressures combined with tightening in the labour market would eventually force the RBA to scale up rates.
According to ABS data, the unemployment rate fell again in March, hitting 4.9 per cent.
Employment increased 37,800 to 11,457,100. Full time employment rose 32,100 to 8,105,600 and part time employment increased 5,700 to 3,351,500.
