Interest rate finger on trigger: RBA

The odds of an October rate rise have shortened considerably after the Reserve Bank
of Australia (RBA) hinted for the second time this week that its finger was on the
interest rate trigger.
The futures market is now pricing a two in five chance of a quarter of a percentage
point rate rise in early October, up from one in three on Monday.
The shortened odds for a rate rise followed the publication on Tuesday of the
minutes of the RBA's September 7 board meeting, which showed increased concern about
the effect of the mining boom on accelerating the inflation rate.
"The central scenario remained for the Australian economy to grow at trend pace, or
a bit above, over the next few years," the minutes said.
"While policy had to be alert to these (global economic) risks, members considered
that if the central scenario came to pass it was likely that higher interest rates
would be required.
"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."
On Monday RBA governor Glenn Stevens said policymakers would use monetary policy to
manage what he described as a "robust economic upswing".
"The task ahead is likely to be one of managing a fairly robust upswing. Part of
that task will, clearly, fall to monetary policy," Mr Stevens said at the Food Bowl
Unlimited Forum business luncheon in Shepparton, Victoria.
The central bank has held the cash rate at 4.5 per cent since May when it rose by a
quarter of a percentage point.
Since October last year to May, the RBA lifted the cash rate six times, from three
per cent, in a series of quarter percentage point rises.
Another interest rate rise of 25 basis points would add about $48 dollars a month to
repayments on a $300,000 mortgage.
ANZ head of macro economics Katie Dean said the message that rates were going up
couldn't be clearer.
"Consistent with governor Steven's speech yesterday, the minutes ... confirm that
monetary policy will need to be tightened to ensure the current terms of trade and
impending investment boom does not push inflation up to undesirable levels," she
said in a research note.
"The strong message from this is: one, at least one further rise in the cash rate is
likely before year-end and two one or two rate rises won't be enough.
National Australia Bank economist David de Garis said an interest rate rise was now
a matter of `when' instead of `if'.
"You certainly get a sense from the minutes that the RBA at this month's board
meeting was already a step or two closer to considering a rate hike," he said in a
note.
"We note that they (the RBA) used the phrase for the time being in September 09 and
again in February 10 (board) meetings, followed by rate hikes the next month."



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