Rate rise is '50/50 call each month'

Borrowers should fear the worst at each of the Reserve Bank of Australia's (RBA)
board meetings this year.
An economist at the nation's biggest home lender says a rate rise will be a "50/50
call" every month, and predicts the cash rate will be a 100 basis points higher by
the end of the year.

While financial markets are yet to price a rate move next month, an upbeat report on
the economic outlook by the central bank suggests that an another increase cannot be
totally discounted.
"Domestically, most economic indicators continued to point to a strengthening in
economic activity," minutes from the RBA March board meeting released on Wednesday
said.
The RBA raised the official cash rate by 25 basis points to 4.0 per cent at the
March meeting, having unexpectedly left policy unchanged the previous month.
"On balance, members concluded that the evidence that had become available recently
had confirmed that it remained appropriate for interest rates to move gradually
towards normal levels, and that it was timely to take another step in that
direction," the minutes said.
At this stage, financial markets are pricing in a low risk of a further rate
increase in April, but a 72 per cent chance of a rise in May.
Commonwealth Bank of Australia senior economist Michael Workman said the minutes
continue to paint an upbeat growth outlook through 2010 and beyond with growth
running near trend, which is about 3.25 per cent.
"There are nine more RBA Board meetings and it looks to be a 50/50 call at each
meeting," Mr Workman said.
"We expect the cash rate (to be) at five per cent by the end of 2010, with a risk of
further rate rises through 2011."
The central bank, noting the steady decline in unemployment, said last year's 5.8
per cent peak had been equal to around the low point in the previous three economic
cycles.
"That is a fantastic result for Australia," Treasurer Wayne Swan told parliament in
response to the board minutes.
Last week's official labour force report, which came after the March board meeting,
showed the unemployment rate was 5.3 per cent in February after a downwardly revised
5.2 per cent in January.
"We have unemployment rates that are the envy of the United States and Europe," Mr
Swan said.
Despite the strength of the labour market, the RBA minutes said wage data for the
December quarter indicated growth in private-sector wages had remained "quite low".
"The most recent data supported the forecast that underlying inflation would fall
further in the near term, to around 2.5 per cent on a year-ended basis over the
coming year," the minutes said.
This would be in the middle of the RBA's two to three per cent inflation target.
The policy-sensitive underlying inflation measure was running at an average 3.4 per
cent in the year to December 2009.
Still, there was a note of caution in the minutes in regard to Greece's debt problems.
"The fiscal problems in Europe, if not resolved satisfactorily, could result in
renewed turmoil in markets and fresh weakness in the global economy, which could
have implications for Australia," the minutes said.
"But while such an outcome could not be ruled out, it was not the most likely one.
The central expectation remained that the global expansion would continue at a
reasonable pace with significant regional differences."