Australia indicates rate rise to help curb inflation

AFP, SYDNEY

Sat, May 07, 2011 - Page 10

Australia’s central bank suggested yesterday it could raise interest rates again soon as it lifted inflation forecasts for the next two years.

In a quarterly monetary policy statement, the Reserve Bank of Australia (RBA) said underlying inflation, which excludes volatile price items, was expected to be about 3 percent in next year — the top of its target band.

In February, the RBA forecast underlying inflation would remain below 3 percent until the end of next year. In the latest estimate the bank said it expects prices to rise to 3.25 percent by the end of 2013 as the economy heads toward full employment, wage rises and mining investment surges.

“Further tightening of monetary policy is likely to be required at some point for inflation to remain consistent with the 2 to 3 percent medium-term target,” the bank said.

It added that the board would “set policy to ensure a continuation of the low and stable -inflation that has made an important contribution to Australia’s strong economic performance over the past two decades.”

The bank left interest rates on hold at 4.75 percent earlier this week, having last lifted them in November.

“Looking ahead, given the outlooks for both the world and domestic economies, year-end underlying inflation is expected to pick up over the course of 2011,” the RBA said.

It said one of the biggest risks was that as mining investment boomed, companies would compete aggressively for labor, leading to more pressure on wages and other costs than the bank initially envisaged.

Chris Joye, economist and chief executive of property Group Rismark, said the RBA could lift rates three times this year to tackle inflation.

“If unemployment holds steady at 4.9 percent and wages growth remains healthy” the RBA is very likely to hike rates in June, he said.