Election Won’t Prevent Another Rate Rise – RBA

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By Greg Peel

RBA Governor Glenn Stevens made his scheduled appearance before the Parliamentary Committee on Economics, Finance and Public Administration.

There is not much in the way of change to the RBA’s previously stated optimistic view on the Australian and global economies. However, Stevens did give more consideration to the potential fallout from the current market turmoil.

The bottom line is that the RBA will watch developments very closely, but at this stage it believes this necessary re-pricing of previously undervalued risk will play out without significantly damaging the core banking system in any one country, given the wide distribution of risk. The central bank acknowledges there remains a risk the sharp withdrawal of credit could impact on the real economy, but it believes this risk to be low so far. Economic fundamentals remain sound.

Thus the RBA is maintaining its vigilant stance against the inflationary pressures it is observing in the economy. There is a strong probability rates will need to be raised again within the next six months. The September quarter economic data will provide a clearer picture, and Stevens will not rule out another rate rise at any time, including in November. If the the data make it clear that something needs to be done, then there would be no way of explaining to the Australian public why something was not done, said Stevens. If the next move has to occur right before the election, then so be it.

So the bias remains firmly to the upside with respect to monetary policy. The RBA will watch global developments closely, but at this stage can see no reason for the bias to be reconsidered.

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