Australia likely to raise rates soon

13:53, October 27, 2010      

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The Reserve Bank of Australia (RBA) is likely to lift the cash rate to 4.75 percent in early November, despite a lower than expected headline inflation reading, economists said on Wednesday.

Australia's headline consumer price index (CPI) rose 0.7 percent in the 3rd quarter, for an annual rate of 2.8 percent, the Australian Bureau of Statistics (ABS) reported on Wednesday,

The median market forecast was for the headline CPI to have risen by 0.8 percent in the same quarter, for an annual pace of 2. 9 percent, according to an Australian Associated Press (AAP) survey of 15 economists.

The ABS said the trimmed mean CPI rose 0.6 percent in the 3rd quarter, for an annual growth rate of 2.5 percent.

The weighted median CPI rose 0.5 percent in the quarter, with an annual rise of 2.3 percent.

Economists had expected the average of the two measures of underlying inflation to rise 0.7 percent in the quarter, for an annual pace of 2.0 percent.

Economist Helen Kevans from JP Morgan, a financial services firm, said it would now be a "very close call" for the RBA when its board meets to determine monetary policy on Nov. 2.

Royal Bank of Canada (RBC) Capital Markets senior economist Su- Lin Ong also said the Nov. 2 board meeting would be a close call.

"The key underlying measures are annualising at closer to two percent, so they're remaining down towards the bottom of the Reserve Bank's two to three percent target range," Ong said.

But Ray Attrill, head of research for independent interest rates advisory firm 4CAST Financial Markets, said the September quarter CPI data "don't provide the smoking gun for an interest rate rise next week."

The minutes of the RBA's October board meeting, released early last week, said an underlying inflation rate of 2.5 to 2.75 percent would be in line with their central forecasts.

Meanwhile, chief economist Craig James from Australia's leading Internet broker Commsec, said the latest inflation figures were well below forecasts and showed the RBA has "time on its hands".

Source: Xinhua


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