RBA minutes may give further rate clues

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Economists will be hoping the minutes from the Reserve Bank’s latest board meeting will provide some further clues as to when an interest rate increase can be expected.

Economists are now generally expecting an increase in the cash rate in June after RBA governor Philip Lowe dropped the long-used word “patient” from his post-board meeting statement earlier this month, saying inflation and wages data would be the focus in coming months.

The first rise after a decade of consecutive rate cuts is expected to be a modest 0.15 per cent, taking the cash rate to a still low 0.25 per cent.

The consumer price index for the March quarter is due on April 27, while the wage price index for the same period is released on May 18, suggesting a rate rise at the June board meeting could be on the cards and after the May 21 federal election.

However, as economists roll out their inflation forecasts, it looks like being a whopper, which suggests a move in May cannot be ruled out.

For example, ANZ economists are predicting annual inflation could surge to 4.7 per cent compared to 3.5 per cent as of December, which would be the fastest pace since 2008 and well ahead of what the RBA is expecting.

More importantly, they expect the more policy-sensitive underlying inflation rate will reach 3.4 per cent, well above the RBA’s two to three per cent inflation target.

“There is a strong case that a blowout March quarter inflation report should be met with a rate hike in May and that the first hike should be 0.4 per cent – taking the cash rates to 0.5 per cent – as 0.15 per cent won’t send a particularly strong signal in terms of its anti-inflation resolve,” AMP chief economist Shane Oliver said.

As for the election campaign, it wouldn’t be the first time the central bank has shown its independence, hiking during the November 2007 election campaign, a poll lost by former prime minister John Howard.

Former RBA governor Glenn Stevens had warned MPs in October 2007 that a rate hike was a possibility.

“If it is clear that something needs to be done, I do not know what explanation we could offer the Australian public for not doing it, regardless of when the election might be due,” Mr Stevens told the House of Representatives economics committee.

“I do not think that there is any case for the Reserve Bank board to cease doing its work for a month, in the month that the election is going to be.”

Dr Lowe was an assistant governor at the time.

The April board minutes are due on Tuesday.

Meanwhile, Australian shares could be off to a shaky start with Wall Street ending a shortened trading week for Easter lower on Thursday after four US big banks reported noticeable declines in their first-quarter profits.

The US S&P 500 fell 54 points to 4,392.59, while the Down Jones Industrial Average dropped 113.36 points to 34,451.23 and the Nasdaq fell 292.51 points to 13,351.08.

Australian share futures last traded on Thursday evening 10 points higher at 7506 and prior to the US close.

The Australian benchmark S&P/ASX200 index ended Thursday 44.4 points, or 0.59 per cent, higher at 7523.4.

The Australian market reopens on Tuesday after the Easter Monday holiday.

 

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

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