RBA tipped to keep cash rate at 2% due to inflation

According to expert investment dealer TD Securities inflation rose by 0.2% last month, resulting in the inflation gauge growing by an ideal 2% in the 12 months to December.

Chief Asia-Pacific Macro Strategist, Annette Beacher said given these figures of inflation, the RBA will probably keep the rates as is when they meet to decide on the cash rate next month.

“We remain of the view that the RBA is likely to leave the cash rate at 2% this year,” she said. “Although, the rocky start to the year has increased the odds that [should the RBA make a] rate cut [it would] prove to be beneficial.”

The Chief Strategist also noted that while the weak Aussie dollar boosted imported prices, domestic inflation counteracted it nicely in December.

According to TD Securities, inflation was evident in the prices of goods and services. December in Australia saw fruit, vegetables, meat and seafood increase by 0.8%, and holiday travel and accommodation by a seasonal 2.3%. This was offset by the falling price of fuel by 3.1%, non-alcoholic drinks by 2.7% and rent by 0.9% in December.

RELATED: Lack of confidence in the Chinese Economy sends Aussie sharemarket into a panic

As predicted in light of the Chinese Yuan currency dip, the Aussie dollar has also been affected. In fact, as the Sydney Morning Herald reported yesterday, the dollar dipped to the lowest level last week since 2009.

Like the RBA consensus, TD Securities has predicted headline inflation this quarter will increase by 0.3%, which is 1.7% more than a year ago. They also forecast the underlying inflation to increase by 0.5% in the quarter, making that an annual ideal rate of 2.0%.

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