» Interest Rates Rise to Pause?

The Reserve Bank of Australia is nearly done in returning interest rates to normal levels but new changes in these rates might be triggered by new inflation numbers.

RBA Governor Glenn Stevens said during a business forum in Toowoomba that the recovering economy triggered them to bring back interest rates close to the average level for the past 10 to 12 years.

Also, Stevens defended the five rate hikes that the RBA did for the past seven months. He claimed that at the time of the global financial crisis, interest rates had only gone up one-third of the speed of rate cuts during the period.

Because of which, the financial markets believe the chances that there will be a rate movement by the RBA next month is only one-in-four. However, the change in interest rates might depend on the inflation rate of the first quarter of 2010.

Last year, the Reserve Bank predicted that the inflation rate would drop from 3.25 percent by the end of 2009 to 2.5 percent by June 2010. The 2.5-percent projected inflation rate is the median of the RBA’s target range.

When this happens, this would trigger price movements of 0.6 percent or lower over the succeeding two quarters which is expected by economists in the private sector. Because of which, Stevens added that the country would be handling some of the highest commodity prices over the last half-century and the investment level is at the highest level over the last century.

Stevens also mentioned that since commodity prices are reverting to their 2008 levels. During that year, the boom in resources increased the inflation rate to five percent while the cash rate of the RBA went up to 7.25 percent. This boom in commodities would trigger more demand for their products in the Asian region and it would counter deflation in Europe and in the United States.

Also, Stevens claimed that the RBA expected the mining sector to boom one again. When this happens, they believe that the tight government and consumer spending will be reversed. However, Stevens added that there are still some risks in investments but this will be negated by the resource sector.