The odds of an increase in official interest rates next month appear to be shortening, with a recent survey of economists showing seven of the 38 experts polled predicting a rate rise at the Reserve Bank of Australia's meeting in February.
The Australian Financial Review, in its regular quarterly survey, polled the 38 economists, and said experts including those at the Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) expected rates to rise next month.
The AFR also quoted former RBA official Jonathan Kearns as saying that inflation pressures would make the RBA board "uncomfortable'', with Mr Kearns, now Chief Economist at Challenger, also expecting a rate increase next month.
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Price pressures persisting
CBA economists issued a statement in December saying they expected a 25 basis point rise in official interest rates in February, but they expected rates to then stay on hold for the rest of the year.
CBA head of Australian Economics, Belinda Allen, said:
The economy has picked up more momentum than expected, and that strength is keeping inflation from easing. A small rate increase in February would guide inflation back toward the RBA's target range of 2-3 per cent.
The CBA team said inflation had been falling slower than expected, and its persistence lent weight to the argument that price pressures were widespread, and not being driven by only a few items.
House prices to feel the pressure
AMP chief economist Shane Oliver is not expecting a rate rise next month, but agrees the risk is to the upside.
He said in a statement late last week:
Our view is that interest rates will be on hold this year as the recent pickup in inflation reverses somewhat and unemployment rises a bit heading off the need for rates hikes but inflation fears and improving growth prevent rate cuts. However, given the recent run of data showing rising inflation, still low unemployment and strengthening private sector economic growth, we are not particularly confident, and the risks are skewed to the upside on rates.
Dr Oliver said commentary around possible rate increases would "continue to act as a dampener on buyer demand'' in the housing market, which would limit the upside in property prices.
The official interest rate is currently 3.6% after three 25-basis-point cuts in February, May, and August.
The AFR survey also found that 17 of the 38 economists surveyed expected rates to rise twice over the next 18 months.
