RBA could hike rates during national election

The Reserve Bank of Australia (RBA) could hike interest rates to coincide with an expected national election later this year, it has been observed.

Yesterday (July 6th), the RBA kept the official cash rate steady at 4.5 per cent for the second consecutive month, noting that the current level is appropriate "pending further information" about local prices and demand.

The bank is due to receive inflation figures for the June quarter on July 28th, just ahead of its next scheduled board meeting on August 3rd. The flexibility implied in the RBA’s announcement this week means a rate hike could be enforced next month should the data reveal a poor consumer price figure.

Speaking to the Australian, Westpac chief economist Bill Evans said: "Short of a further substantial deterioration in the global economy, we think that a print of 0.8 per cent for the quarter on underlying inflation will be enough to trigger another rate hike."

As the newspaper observed, most analysts expect prime minister Julia Gillard to call an election later this month or in the first week of August for a poll in late August or early September.

Any rate rise could therefore prove troublesome for the government at election time in light of the continuing debt problems of many Australian households.

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