But economists say the decision could be a close call, as the central bank waits to see the outcome of fresh economic indicators due over the next two weeks.

In the minutes of its November 3 board meeting, released on Tuesday, the central bank said if economic conditions continued to evolve positively, as expected, a further gradual adjustment in the cash rate would most likely be appropriate.

 "But the pace of that adjustment remained an open question," the minutes said.

Interest rate expectations retreated in reaction to the minutes, with the likelihood of another rate rise on December dropping to a 59 per cent chance - down from 70 per cent - according to Credit Suisse.

JPMorgan economist Helen Kevans said the RBA would probably raise rates again at its scheduled December 1 meeting.

"If anything, we expect the RBA will be taking their decisions on their merits from here on in - the meetings will be very data dependent, she said. "We think they’re heading for another 25 basis point rate hike in December.

"We think the RBA wants to remove that insurance policy it put in place to protect the economy from the worst of the (global economic) crisis and remove the policy accommodation that saw the cash rate head down to those emergency settings."

The RBA on November 3 raised the cash interest rate by 25 basis points to 3.50 per cent, its second rate rise in as many months.

If the RBA does raise rates in December, it would be the first time it had taken the cash rate higher three months in a row since it started announcing moves in January 1990.

The minutes showed the board was ‘‘conscious of balancing risks’’ when considering adjusting the rate, noting improved consumer and business confidence, better employment data and less spare capacity in the economy.

"On the one hand, business and consumer confidence could prove fragile, and economic activity at home and abroad might slow more than expected as the effects of stimulus measures faded, " the minutes said.

" On the other hand, a lengthy period with interest rates at very low level carried its own risks, particularly once the threat of serious economic weakness had passed."

CommSec economist Savanth Sebastian said improved economic conditions over the past few months would encourage the RBA to continue a steady drum-beat of interest rate hikes.

"There was nothing in that statement that changed our view that the RBA would raise rates for an unprecedented third consecutive month in December,"  he said. I think if anything the economic data over the last month has probably reinforced that conviction about the December rate call.

" You’ve had business conditions, consumer confidence, lending aggregates and even labour market conditions recording pretty healthy readings."

The minutes also said that financial markets, while still volatile, were in better shape than they were six months ago, while debt and equity markets were providing easier, and less costly, access to funding.

Better-than-expected labour force data for September, showing a drop in the unemployment rate and an up-tick in total employment, was evidence that unemployment was more moderate than expected, the minutes said.

The local economy generated 40,600 new jobs in September, while the rate of unemployment dropped 0.1 per cent to 5.7 per cent in the month.

The October figures - published after the November rate decision - showed the economy beat market expectations to add another 24,500 jobs in the month.

The minutes showed the bank also took note of a raft of economic data pointing to improved economic conditions among Australia’s trading partners.

" The important consideration for the board was that, for the group of economies that comprise Australia’s major trading partners, a broad range of forecasts were expecting growth to be around trend in 2010," they said.

 

(Source from theage.com.au)