Australian interest rates are set to increase again by 25 basis points when the Reserve Bank of Australia board meets today, taking official interest rates to 4.75 percent.
In the minutes of the RBA’s September board meeting, concerns over the inflationary pressures an increased demand for Australian mineral resources were raised, and with commodities increasing by 52 percent in the RBA’s Index of Commodity Prices released at the beginning of the month, the RBA will be under pressure to act to curtail inflationary pressure before it grows further.
“Prospects in the resources sector were especially positive, and the increase in investment in this sector would have significant flow-on effects to the broader economy. Members observed that previous investment booms and increases in the terms of trade had posed significant challenges for economic policy, and that high levels of resource utilisation were likely to put pressure on inflation.” the minutes of the RBA’s September Board meeting read.
Treasurer and acting Prime Minister, Wayne Swan yesterday in an interview with Madonna King of ABC Radio was quick to caution the banks from increasing their interest rates to home loan customers more than the expected increase in interest rates from the RBA.
“I don’t believe, Madonna, there is any justification whatsoever for any bank to move above the official cash rate decision of the Reserve Bank. Banks are making healthy profits at the moment. Their net interest margins are back above what they were before the Global Financial Crisis. So I don’t believe there is any case that the banks can make to move over and above any decision that may or may not be taken by the Reserve Bank tomorrow.” Mr Swan said.
The Reserve Bank of Australia had previously been tipped to wait until September quarter inflation numbers are released later this month before acting again to increase interest rates, however the increase in demand for Australian commodities, increasing 52 percent over the last 12 months and 3.6 and 1.5 percent in August and September respectively.
In addition renewed consumer confidence in the United States economy is set to drag the world’s largest economy out of its economic slump, returning it to growth and increasing demand for Chinese made goods, which will in turn increase demand for Australian commodities, increasing inflation domestically.
