Rate rise on the way

Money being passed from one hand to another. Picture: Marschall Michael Source: The Advertiser

This assertion comes despite uncertainty from leading economists, who remain divided over the interest rate outlook for the rest of the calendar year.

BankSA general manager Chris Ward says the Reserve Bank is likely to lift official interest rates one more time in 2010.

He predicts the rise will most likely come in November and he expects the size to be 25 basis points.

"It's (the Reserve Bank) keeping a close eye on inflation figures but is likely to wait until the November meeting so it can factor in the September quarter CPI figures," Mr Ward says.

Australian Central acting managing director Darlene Mattiske-Wood agrees there is not expected to be an increase in official rates until later this year.

"For interest rates to increase, we would need to see an increase in retail sales, which saw only a rise of 0.2 per cent during June," she says.

"If Australians keep focusing on paying off their debt or putting their money into savings rather than spending, then we'll be able to keep a lid on inflation, which will help keep interest rates at or around current levels."

Community CPS Australia chief financial officer Wayne Matters says the recent CPI result has taken the pressure off, so rate rises are not expected in the short term.

"However, the indicators for an upward trend in rates are there," he says. "Australian growth prospects remain good, driven by strong commodities exports, largely to China, and solid terms of trade.

"Consumer confidence is strong, and current mortgage rates are not growth-restrictive.

"Additionally, unemployment is already quite low, and still heading down, so we're likely to see upward wage pressure on inflation moving forward."

Mr Matters says the next scheduled CPI release in late October will be pivotal to the official interest rate. "I expect inflation to have bottomed out at that stage, possibly showing signs of increasing again in the third quarter of this financial year," he says.

"If I was asked to nail my colours to the mast, I think our next official rate rise will be in early 2011."

Giving a longer term outlook, National Australia Bank chief economist Alan Oster says he is tipping interest rates to rise about one percentage point in the next 12 months.

He says once consumers worry less about Europe's debt problems, the RBA will again raise rates.