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THE Reserve Bank has prepared the way for an extraordinary mid-campaign rate rise, spelling out in unprecedented detail the triggers that would make it move when its board next meets in 13 days’ time.
The board’s minutes – released as the Coalition declared interest rates central to its campaign – for the first time include a staff forecast of the June-quarter inflation rate the bank expects when the figures are released next Wednesday and say if it is not met a rise is on the cards.
A jump in the cash rate from 4.5 to 4.75 per cent would add $48 to the monthly cost of a $300,000 mortgage and $64 to the cost of repaying a $400,000 mortgage, taking the total extra costs since October to $283 and $339 a month.
The bank wants to make the decision process as clear as possible so a rise would not take the Gillard government by surprise.
When it pushed up interest rates mid-campaign in November 2007 – its first such move – the then prime minister John Howard appeared unprepared, apparently having believed the bank would make no such move. This time the onus is on the Reserve Bank board to act rather than wait if it thinks conditions warrant a rise, in order to be even handed.
The minutes say bank staff are expecting the June quarter inflation figure to be ”a little above 3 per cent” on an annual basis but caution that is not the figure to watch as it will be contaminated by the 25 per cent increase in tobacco tax.
Instead the bank will watch the underlying rate of inflation which it expects to ”continue to moderate in year-ended terms, to be below 3 per cent for the first time in three years”.
Should that not be the case, it will be minded to act.
And there is a catch, also spelt out in the minutes. The board will want to be sure that conditions in Europe do not make an increase dangerous. It is sweating on the result of ”financial stress tests” due later this week.
Source: The Sydney Morning Herald