RBA could raise cash rate in May, says JPMorgan

RBA could raise cash rate in May, says JPMorgan

A JPMorgan economist has predicted that the RBA will wait until at least May before increasing interest rates.

A figure from financial giant JPMorgan has predicted that the Reserve Bank of Australia (RBA) will hike interest rates again in May, after opting against an increase earlier this month.

In comments which could influence consumers considering opening savings accounts or taking out home loans, the firm's Stephen Walters told RTT News that the central bank is acutely aware of the inflationary pressures presented by a fresh mining boom.

He implied that the reconstruction process following last week's Japanese earthquake and tsunami is likely to prove commodities-intensive, thereby meaning that the country's demand for Australian products could rise sharply.

But Mr Walters pointed out that the economic uncertainty created by the disaster - which has impacted stock markets across the globe this week - may mean that the RBA adopts a cautious short-term approach to possible cash rate rises.

Minutes from the RBA's most recent summit on the matter were published today (March 15th 2011), but Mr Walters pointed out that given the extraordinary nature of recent events, they give little indication as to the bank's future policy.

"These minutes, for example, don't reflect the impact of the latest escalation of tensions in the Middle East or, of course, the earthquake that hit Japan," he commented.

In the minutes, the RBA noted that the stability of the Australian banking sector had improved to near pre-recession levels, but acknowledged that household spending had been reined in somewhat over recent weeks.

However, members of the rate-setting committee did not believe that the overall economic outlook had changed significantly enough to warrant an increase in the base rate and therefore voted in favour of holding it at 4.75 per cent.

Interest rate rises from last year are still affecting the construction industry, it has been said.

According to the Australian Associated Press, last year's cash rate increases by the Reserve Bank of Australia (RBA) - which included a surge of 0.25 per cent in November - have played a part in building approvals dropping.

Figures from the Australian Bureau of Statistics show a 7.4 per cent fall in February, while in January approvals were down 21.8 per cent.

However, ICAP senior economist Adam Carr said these results were due to the floods in Queensland and Victoria - and he added: "The February numbers are still being primarily driven by Victoria and Queensland and that's obviously flood induced, so just dismiss it - it doesn't mean anything."

Following the November rise by the RBA - which took the cash rate to 4.75 per cent - the Commonwealth Bank opted to up the interest rate on its home loans and savings accounts.

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