Business Groups Tell RBA to Keep Rates on Hold
It would be wrong for the Reserve Bank to lift the interest rates next week especially with today’s strong inflation numbers. This was the warning set by business groups to RBA.
An increase of 0.9 per cent in the June quarter was seen in the consumer price index for the annual rate of 3.6 per cent. This is well above the two to three per cent target band of RBA.
Also seen was a 0.9 per cent increase in the quarter for the underlying inflation measures. This lifted the annual rate to 2.7 per cent from the 2.25 in the year up to March.
On Tuesday, the Central Bank will hold its monthly board meeting.
These figures do not suggest that inflation is getting out of hand according to Andrew Harvey, Housing Industry Association Senior Economist.
“When today’s CPI is considered alongside the weakness in the non-resource sectors of the domestic economy and the considerable volatility in the global economy, the only sensible call by the RBA is rates on hold for the remainder of 2011,” he added.
“Interest rate stability is fundamental to any chance of avoiding what looks likely to be a weak forthcoming period of home building,” said Harvey.
The sharp rising of the price of fruit during the wake of the summer’s natural disasters was one of the one-off impacts within the CPI figures. This is according to Dean Ruston of the Mortgage Broker Loan Market.
“Australia is clearly experiencing the ongoing effects of the cautious consumer. Year-on-year housing approvals are down, retail sales are down and it’s now well reported that consumers are committed to rebuilding savings,” he added.
The spike in the Australian dollar to its highest level since the time it floated on the foreign exchange market was one immediate impact from the inflation rate.
“Trade-exposed industries, whether export oriented or import competing, are taking a competitive hit while seeing limited benefits arising from the big investments in our minerals sector. The current imbalances in the economy carry substantial risks,” said Heather Ridout, Australian Industry Group Chief.
Ms. Ridout said that the federal government has to lift productivity and ensure that the economy has a diversified base where medium and long-term prosperity may be built.
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Source: WABUSINESS.COM.AU
