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RBA Flags Further Interest Rate Rises

The Reserve Bank’s minutes for May show that rate rises will continue into the foreseeable future, echoing the grim outlook given by analysts.

“Members reaffirmed the Board’s determination to do what is required to bring inflation back to target, while emphasising that it is still seeking to traverse the narrow path. Members also agreed that further increases in interest rates may still be required, but that this would depend on how the economy and inflation evolve,” the RBA minutes said.

The minutes revealed that the increase in housing prices and weak Australian dollar were key to the brief rate rise pause the RBA implemented in April.

“Members also reviewed recent developments in asset markets – in particular, they noted the depreciation of the exchange rate and the increase in housing prices.

The Reserve Bank of Australia building is seen in Sydney, Tuesday, October 1, 2019. The Reserve Bank has cut the official interest rate to a new record low of 0.75 per cent in a bid to drive up wage growth and reduce unemployment. (AAP Image/Dan Himbrechts) NO ARCHIVING

“While several factors had contributed to these developments, the decision to hold interest rates steady in April was likely to have contributed.

“Although the Board does not target asset prices, members agreed that movements in asset prices provide relevant information and need to be considered when assessing the outlook for activity and inflation.”

Yesterday, the NAB said it would not rule out interest rates climbing to 4.35 per cent, from the current 3.85 per cent.

“It is clear that the near-term balance of risks on inflation remains to the upside, and the RBA is forecasting inflation to only return to the top of the target band by mid-2025,” NAB’s chief economist, Alan Oster said.

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