Rate rise decision will be a close call

Economists are divided on whether the RBA will lift the official cash rate today, with futures markets putting the chance of a rate rise at 60%.

While economists say the RBA will be looking six-to-12 months ahead to try and prevent inflation rising due to wages pressure and rising prices, whether the RBA has enough hard data to justify a rate rise this month remains a big question.

The release of a private inflation gauge yesterday showed inflationary pressures remain reasonably benign, with headline inflation flat and the trimmed mean measure rising just 0.2% in the last four months.

CommSec economist Craig James believes the RBA will be “scratching around” for reasons to lift rates.

“Of course the Reserve Bank is looking six to 12 months down the track, believing the tight job market will be contributing to future increases in wages and prices. And on that basis, it doesn’t want to fall behind the curve in stemming inflationary pressures.”

“Still, current evidence suggests that price pressures and economic activity are softer than most had assumed. Certainly there is a case to be made for delaying a rate hike for at least a month.”

However, TD Securities, which produced yesterday’s inflation gauge, expects the RBA to raise rates by 25 basis points to 4.75% – and then hold off on any further cuts until next year.

Regardless of what the economist think, it appears at least some mortgage holders are already getting prepared for higher rates.

New figures from mortgage broking group Australian Finance Group says fixed-rate mortgages accounted for 3.7% of all approvals in September, up from the 2.2% monthly average through the rest of the year.

SmartCompany will report on the RBA’s rate decision later today.