With inflation at the higher end of the Reserve Bank of Australia’s desired levels (currently at 2.9%), a surge in house prices in March, worldwide GDP growth revised upwards, and Australia’s terms of trade rising more than expected, the RBA in their May meeting have once again increased interest rates by 25 basis points.
This means that the basic cash rate now stands at 4.5%, and the increase the fifth out of the RBA’s last six meetings.
Additionally, the domestic economy continues to strengthen, helped by a falling unemployment rate and rising prices, particularly with property prices having jumped 20% in capital cities in the year to March. This is the biggest jump in 20 years.
Governor Glenn Stevens stated:
“Output growth over the year ahead is likely to exceed that seen last year, even though the effects of earlier expansionary policy measures will be diminishing. The process of business sector deleveraging is moderating, with business credit stabilising and indications that lenders are starting to become more willing to lend to some borrowers, though credit conditions for some sectors remain difficult.”
So are more rate increases on the horizon?
Well, with the RBA seeking to keep inflation within the 2-3% “normal” range, any figure around the 3% mark (such as the current 2.9%) is likely to mean rates are adjusted accordingly. That much is a reasonable certainty. Some, such as JP Morgan anticipate rates to rise to as much as 6.25% by the end of 2010.
Read the statement by RBA Governor, Glenn Stevens HERE