The Reserve Bank of Australia meet to discuss whether to keep interest rates on hold today – but economists are predicting while the
RBA will keep rates on hold for now, change is in the air.
Rising inflation is signalling the beginning of the end for the cash rate, which was kept on hold at a record low 2.5% for the sixth straight meeting last month.
However, the TD Securities Melbourne Institute monthly inflation gauge rose by 0.2% in March and by 2.7% in the 12 months to March, a similar pace to February.
The increase was driven by price rises for fruit, vegetables, meat, seafood, travel and accommodation and offset by falls in rents, petrol and audio, visual and computing equipment and services.
This latest report will bring little comfort for the RBA, said TD Securities head of Asia-Pacific research Annette Beacher.
“We expect headline inflation to rise by 0.6% in the quarter, to be 3% higher than a year ago, and we forecast underlying inflation to rise by 0.8% in the quarter, for an annual rate of 2.9%.
“We suspect the recent and unexpected pickup in inflation has prevented the RBA from talking down the currency in recent months.”
She said the RBA is “increasingly seeing the glass as half full”, with the turnaround in leading indicators such as job vacancies and building approvals suggesting non-mining activity is recovering.
“Inflation pressures are clearly building up, neither due to ‘noise’ nor proof that Australia’s speed limit on growth is below 3%. While the RBA Board has a few months to voice the period of stability in the cash rate theme, the use-by date for the emergency cash rate is approaching fast.
“We see the August monetary policy testimony as the perfect timing to announce that emergency cash rates are no longer required, paving the way for at least one small upward adjustment by year end.”
