Interest rates will remain on hold for the rest of the year, NAB chief economist Alan Oster has said.
According to NAB's latest global and Australian forecasts, the RBA is expected to keep the official cash rate on hold at 4.5 per cent until 2011, when rates will ultimately rise and peak at 5.5 per cent.
Mr Oster said while the RBA won't look to lift rates until the new year, there is still the risk of a ‘November trigger', where a bad CPI result in the September quarter could force the Reserve Bank to hike rates sooner rather than later.
If this is avoided, Mr Oster said he expects the RBA to lift rates by 25 basis points each quarter in 2011.
"We continue to see the RBA as starting the tightening cycle in February 2011 with rate rises of 25 points per quarter bringing the peak to an unchanged 5.5 per cent by late 2011," Mr Oster said.
"However given the strong growth expected and tight labour markets we now expect cash rates to remain at 5.5 per cent during 2012 - where previously we had expected to see rates ease back towards 5 per cent.
"Despite slightly weaker near term growth we still see pressures on inflation with tighter labour markets being important. Thus we still expect to see core inflation around 2.75 per cent by end 2010 (same as the RBA) and remaining around the 3 per cent mark through most of 2011."