The Reserve Bank of Australia is expected to keep the official interest rate steady at 4.5% today, as the board awaits crucial inflation data to be released later this month.
A survey of 22 economists, conducted by Bloomberg, has found that none are expecting the board to raise the official interest rate.
With the RBA having said that it believes rates are at more “normal” levels, any movement in rates now will be carefully calculated, economists say.
“The process of normalising rates has been completed and any further rate hikes would signal a tightening cycle – which is unlikely to occur until the Reserve Bank views the June quarter inflation data,” Craig James, CommSec senior economist said in a statement.
While ANZ’s measure of job advertisement showed a strong 2.7% increase in job ads, chief economist Warren Hogan warned there was still some danger that the level of new employment could fall over the next few months, and this would have some affect on the RBA’s decision-making in the short-term at least.
“The mixed result for the ANZ Job Advertisements series adds to the case for the RBA to keep policy rates unchanged for now,” he says.
“Nevertheless, ongoing solid employment growth, given Australia’s already relatively low unemployment rate, would create significant upside risks to the RBA’s already relatively high inflation forecasts.
“Provided the global environment does not significantly deteriorate, we therefore expect the RBA will recommence tightening monetary policy in the latter part of the year and raise the cash rate to 5% by December 2010.”
The international economic environment – and particularly the sluggish growth outlooks in Europe and the United States – is also of concern.
The RBA stated last month it will need to keep various global economic factors “under review”, including the ongoing debt problems in Europe. It awaits crucial inflation data that could provide an agenda for the rest of the year.
“At this stage, global growth is still expected to be at about trend pace in 2010,” Governor Glenn Steve said in a statement. “Conditions in Europe overall have been relatively weak, and the foreshadowed budgetary tightening will probably mean that this will continue, but growth is becoming more established in North America.”
“In Australia, with the high level of the terms of trade expected to add to incomes and demand, output growth over the year ahead is likely to be about trend, even though the effects of earlier expansionary policy measures will be diminishing. Inflation appears likely to be in the upper half of the target zone over the next year.”
SmartCompany will report on the RBA’s decision just after 2.30pm this afternoon.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
