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Reserve Bank set to raise rates after high inflation figures

The Reserve Bank is likely to increase rates for the sixth time in seven months at its monthly board meeting next Tuesday analysts predict, after inflation data came in higher than expected.

Reserve Bank InflationExpectations the Reserve Bank would increase official interest rates by 25 basis points hit 59 percent this morning, before settling back to 49 percent by lunchtime Credit Suisse data shows. This is an increase from the 33 percent levels seen before the inflation announcement yesterday, with annual inflation reaching 2.9 percent for the first three months of this year.

Should the Reserve Bank lift interest rates by 25 basis points, it would see the cash rate at 4.5 percent, which when passed onto home owners by the banks would see interest rates above the 7 percent mark for all lenders, not just the outliers.

With the inflation rate at 2.9 percent, this puts it at the top of the 2-3 percent ‘preferred range’ the RBA aims its monetary policy actions towards, with the trend for inflation moving upwards it will place considerable pressure on the RBA to act now to take some of the steam out of the economy before inflation surges to unmanageable levels.

“Yesterday’s CPI (consumer price index) data suggests stronger inflationary pressures this year remain a concern,” St George chief economist Justin Smirk told the SMH.

“we think it is likely the RBA will decide to raise interest rates by 25 basis points in May,” Mr Smirk said.

Householders with mortgages are already feeling the pinch after 5 interest rate increases over the last six months says Mortgage broker David Deakin to the ABC.

“We have on our client database about 2,000 clients and we’re actually phoning our clients one by one and we’re specifically asking them the question of how are they going with their mortgage, how are they finding the interest rate increases,” he said.

“The general response is not not really that encouraging from where the normal mums and dads sit.” Mr Deakin said.

The only factors likely to prevent the RBA from increasing rates will be concern over damaging Australia’s ‘two speed economy’ combined with fresh international credit concerns as the EU rushes to sure up the failing Greek economy and stem damage from flowing across the EU to Spain, Portugal and Ireland.

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David Olsen

David Olsen

An undercover economist and a not so undercover geek. Politics, business and psychology nerd and anti-bandwagon jumper. Can be found on Twitter: <a href="http://www.twitter.com/DDsD">David Olsen - DDsD</a>

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