Bank of Australia Signals Move Closer to Rate Hike

Minutes from the Reserve Bank of Australia’s (RBA) April meeting released today show that the RBA is on the verge of raising interest rates for the first time in more than a decade due to strong inflation and tight market conditions.

The RBA expects Australian core inflation to be 2% to 3% above the RBA’s target in the first quarter of this year. And more private companies are expected to be willing to pass on higher product prices to consumers. The wage rate, while declining, is likely to recover, and the unemployment rate is expected to fall to 4% or below.

“Such situations could be a factor driving the RBA to raise interest rates for the first time in more than 10 years for the coming months. There may be more important evidence for us to assess inflation and labor costs,”

according to the minutes.

At its meeting on April 5, the RBA decided to leave the key interest rate unchanged at 0.1%. However, the RBA hinted that it might raise rates for the first time in more than 10 years, contradicting its pledge to conduct monetary policy with patience.

The National Bureau of Statistics Australia will release the Consumer Price Index (CPI) on April 27. Analysts expect the core CPI, which excludes prices in the energy sector, to rise by at least 3.2% in the first quarter, which would put the core CPI above the RBA’s target of 2% to 3% for the first time and could prompt the RBA to decide to raise interest rates to curb inflation.

Investors in the financial markets expect the RBA to raise the key interest rate by 0.25% at its June 7 meeting and expect another seven rate hikes to 2% this year.

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