RBA 'likely to pause' rate hike next month

Wednesday 05 May 2010

Article by Mozo

The Reserve Bank of Australia (RBA) is likely to keep the official cash rate on hold next month after making a third consecutive hike yesterday (May 4th), an expert has predicted.

Citigroup director Paul Brennan told the AAP that the RBA’s justification for the 25 basis points increase yesterday – namely that it would bring rates back to "average levels" – was consistent with previous comments by the central bank.

"That is indicative of the view that they’re probably going to pause, given that they’re saying there has been a big adjustment," he said.

Mr Brennan noted that the Reserve Bank’s decision to increase the official cash rate to 4.5 per cent had partly been prompted by higher than expected inflation.

He said the RBA is aiming to achieve an average inflation rate of two to three per cent over time.

Announcing the hike yesterday, Reserve Bank governor Glenn Stevens argued that while rising interest rates have led to a fall in new home loan approvals in recent months, "the market for established dwellings is still characterised by considerable buoyancy" as property prices continue to increase.

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