Australia | Jul 04 2007
By Greg Peel
There were some economists who would not have been surprised if the RBA had raised rates this morning, but consensus among the more hawkish is that August is the more likely time frame.
A stronger than expected economy and surprisingly tight employment market point to inflationary pressures at the core level, while increasing oil and food prices are set to impact on the headline figure. The RBA has a record breaking Aussie dollar to contend with, but a lot of its strength is to do with the anticipation of a rate rise, yen carry traders, and increased price expectations for bulk commodities which offset the effect of the higher export cost. A rate rise itself is unlikely to have a huge impact on the Aussie as it would not be a surprise.
The RBA has also to contend with Australia’s runaway levels of mortgage and credit card debt, and the ramifications a rise would have on the average householder. However, to not act now in the face of rising inflation would only put off the problem in the RBA’s view. Nevertheless, the RBA also has an election looming, and although this should not affect decisions the less hawkish of economists is expecting a rise to come only after the decks are cleared.
The RBA does not provide an explanation when it leaves rates unchanged. If economists say anything meaningful in response FNArena will bring you a report later today.