RBA leaves rates unchanged

By Nicki Bourlioufas
September 5, 2007
Article from NEWS.com.au

THE central bank has kept home lending costs steady at 6.5 per cent today, but the pain may not be over yet with some analysts predicting another rate rise before the year's end given strong economic growth.

While analysts did not expect any upward movement in interest rates today after the Reserve Bank's monthly meeting, strong economic growth could push the central bank to raise interest rates later this year, analysts say.

The nation's gross domestic product jumped 4.3 per cent in the year to June. In May, the Treasurer's Budget forecast average growth of just 2.5 per cent.

"These data are just another indication of the positive momentum in the economy at present," Macquarie Bank economists Brian Redican and Annette Martins.

"It appears that the main decision facing the RBA is deciding when it should tighten monetary policy rather than whether any tightening is needed," said Mr Redican and Ms Martins.

Since 2002, Australians have been hit with nine interest rate rises with a recent rate rise in August.

November a key month

Wizard Home Loans chairman Mark Bouris says the RBA will want to wait for the lag effect of last month’s rate rise to hit the market.

“Therefore, they will have to wait for the September quarter consumer price index data - due for release on October 24 - to confirm any increase in inflation.

“The absolute earliest the RBA will consider lifting interest rates is in November or December this year. But I am still yet to be convinced inflation will break out above the RBA's comfort zone by then,” he said.

Any rate rise in November would likely sit in the middle of the expected federal election campaign and haunt Prime Minister John Howard, who told voters at the last election he would keep interest rates low.