Economists tips fourth straight rate rise

Economists are unanimous in their opinion that the Reserve Bank of Australia will lift interest rates by 25 basis points to 4% following today’s board meeting.

A Reuter’s poll of 20 economists found all of them expect rates to rise for their fourth consecutive time. The RBA boosted rates at the October, November and December meetings, the first time in its history that rates have risen for three consecutive months.

While there was no meeting in January, a flood of strong economic data, including strong employment data, signs inflation is starting to rise and the continued boom in China, leaves the RBA with little choice but to push rates back to what it calls more “normal” levels.

The only negatives that may sway the RBA are a surprise 8.1% fall in job advertisements and continued weakness in the US economy.

CommSec economist Craig James says the Reserve Bank is still on track to lift interest rates despite the jobs data, but argues it “isn’t the forgone conclusion that some observers had expected”.

“The Reserve Bank will need to tread a cautious path over the early months of 2010 until a clearer picture of the economy emerges.”

One potential problem the RBA may need to watch is the stress placed on new home owners by interest rates rises.

A new report from Fujitsu Consulting released yesterday showed nearly half of first home owners who entered the market in the last 18 months are now experiencing some type of mortgage stress.

SmartCompany will report this afternoon’s rate decision as it happens.