Rate rise may only be a month away: Experts

The Reserve Bank of Australia has set the scene for a possible Melbourne Cup Day rate rise on November 2, after surprising economists and the market by leaving rates on hold at 4.5%.

While futures markets had priced in a 70% chance of a rate rise and 19 out of 24 economist surveyed by Reuters expected a hike, the bank said uncertainties about the global economy and a reasonable inflation outlook meant there was no need.

“The current stance of monetary policy is delivering interest rates to borrowers close to their average of the past decade. The Board regards this as appropriate for the time being.”

However, economists have seized on those magic words – “for the time being” – as evidence rates are likely to rise in the very near future.

Westpac chief economist Bill Evans, who switched his view last week to support an October rate rise, believes a November rate rise remains a distinct possibility, with three crucial pieces of data likely to decide whether the RBA moves or not. These are:

• Employment data, due on October 7.
• Consumer sentiment, due on October 13.
• Consumer price index, due on October 27.

The CPI data, which provides a picture of inflation, will be particularly closely watched be the RBA and economists.

Evans expects the data will show inflation running at 0.7-0.8% during the September quarter, and says this is likely to be enough to push up rates.

However, CommSec’s Craig James isn’t so sure.

“Are rates now on hold for the remainder of the year? Perhaps. The Reserve Bank generally avoids ‘one-off’ rate changes. Usually it is a case of two or three movements in rates and then sit back for a number of months.”

“But clearly the inflation data at the end of the month is the next biggest test. If the result is ‘good’… then the Reserve Bank may indeed leave rates alone until the New Year.”