Rate hike looks likely

Jessica Darnbrough

Despite keeping the official cash rate on hold for the last four months, RBA governor Glenn Stevens has hinted that rates will go up sooner rather than later.

Yesterday, Mr Stevens acknowledged in his statement on monetary policy that inflation was likely to trough at higher than normal levels during the current economic cycle.

"We think the global economy will record reasonable growth over the coming year, though not as strong as the past year - a strength that, incidentally, surprised most observers," Mr Stevens said.

"Of course, that central forecast could turn out to be wrong. Something could turn up internationally or at home that produces some other outcome.

"But if downside possibilities do not materialise, the task ahead is likely to be one of managing a fairly robust upswing. Part of that task will, clearly, fall to monetary policy."

The central bank's stated mission is to keep inflation in a target band of two to three per cent on average over the medium term.

The Reserve Bank rapidly increased the cash rate, from three per cent to its current 4.5 per cent, in six increments between October last year and May.

The underlying rate of inflation, which influences the Reserve Bank 's rate decisions, fell from 4.7 per cent in the September quarter of 2008 to 2.7 per cent at June 2010.

Jessica Darnbrough

Despite keeping the official cash rate on hold for the last four months, RBA governor Glenn Stevens has hinted that rates will go up sooner rather than later.

Yesterday, Mr Stevens acknowledged in his statement on monetary policy that inflation was likely to trough at higher than normal levels during the current economic cycle.

"We think the global economy will record reasonable growth over the coming year, though not as strong as the past year - a strength that, incidentally, surprised most observers," Mr Stevens said.

"Of course, that central forecast could turn out to be wrong. Something could turn up internationally or at home that produces some other outcome.

"But if downside possibilities do not materialise, the task ahead is likely to be one of managing a fairly robust upswing. Part of that task will, clearly, fall to monetary policy."

The central bank's stated mission is to keep inflation in a target band of two to three per cent on average over the medium term.

The Reserve Bank rapidly increased the cash rate, from three per cent to its current 4.5 per cent, in six increments between October last year and May.

The underlying rate of inflation, which influences the Reserve Bank 's rate decisions, fell from 4.7 per cent in the September quarter of 2008 to 2.7 per cent at June 2010.

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