RBA rate move 'a close call' after inflation data

Wednesday 27 October 2010

Article by Mozo

The Reserve Bank of Australia (RBA) may still raise the official cash rate next week despite inflation data coming in lower than expected, a leading economist has said.

New Australian Bureau of Statistics data shows that the country's headline consumer price index rose 0.7 per cent in the September quarter for an annual rate of 2.8 per cent.

The result led federal treasurer Wayne Swan to state that inflation is continuing to moderate.

However, speaking to the AAP, JP Morgan economist Helen Kevans noted that the medium-term inflation outlook is still at the upper end of the RBA's target band, meaning that an official interest rate rise before the end of the year could still be on the cards.

"Given the outlook for medium term inflation … headline inflation will be above the RBA's comfort zone next year," she said. "I think that will be enough to push the RBA over the line next week. But it will be a very close call."

The RBA will decide whether to lift the official cash rate from its present level of 4.5 per cent next Tuesday (November 2nd).

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