Interpac Business and Migration Solutions Melbourne Australia

(October 21, 2010)

IT is only a matter of time before interest rates rise again, with board minutes from the Reserve Bank (RBA) revealing that it "could not wait indefinitely" due to rising inflationary pressures.

Minutes from the latest RBA monetary policy board meeting, taken on October 5 and released on Tuesday, say that while the overall global outlook was broadly unchanged since the RBA board's previous meeting, interest rates would need to rise "at some point".

A gradual tightening in resource utilisation meant that inflationary pressures would strengthen, the minutes say.

The minutes reveal that the decision to keep the cash rate on hold at 4.5 per cent, taken at the October 5 meeting, was finely balanced.

"While the board recognised that it could not wait indefinitely to see whether risks materialised, members judged that they had the flexibility to do so on this occasion," the minutes said.

Based on the medium-term inflation outlook, a case could be made to increase the cash rate at the October meeting as developments had been broadly consistent with central forecasts, the minutes said.

But members decided to leave the cash rate unchanged after accepting that the economy was expected to continue growing at trend in the near term, credit growth had softened and the rise in the exchange rate would effectively be "tightening financial conditions at the margin".

Board members also said it was "still possible" that downside risks to global growth could materialise.

"Members felt these arguments were finely balanced," the minutes said.

Overall, they concluded that it would be "appropriate to hold the cash rate steady for the time being," until evaluating further information at the next meeting, on Melbourne Cup Day, November 2.

The board noted that, despite the release of unemployment figures showing a 5.1 per cent unemployment rate in August, there had been a relatively limited amount of economic data released over the past month.

After rising to around record high levels in the June quarter, Australia's terms of trade were estimated to have increased further in the September quarter but were then expected to decline gradually.

The minutes also noted that a slowdown in the pace of household borrowing had been accompanied by a cooling in the established housing market, and that the borrowing slowdown was a "welcome development".

There had been little new information on price and wage inflation, with consumer price index figures due out later in the month.

Good rainfall had led to conditions in the farm sector improving significantly.

In Europe, Ireland had been a focus of concern in financial markets and members noted that periods of "acute stress" in Europe were "likely to recur".

Meanwhile, business investment was expected to strengthen over the next few years and offset a scaling back in public investment.

Prospects for growth in Asia remained "solid" despite slowing from earlier in the year as the prices of many of Australia's export commodities remained at high levels, board members said.

"Domestically, members noted that the economy appeared to be evolving broadly in line with the bank's expectations," the minutes said.

The outlook remained for public spending to slow but for private demand to pick up, particularly in business spending.

(Source:News.com.au)