Expert warns RBA interest rate hike could happen next week

PHOTO: Reserve Bank of Australia (RBA). FILE

There’s a chance that the Reserve Bank of Australia (RBA) could raise interest rates as soon as next week, experts have warned.

What’s more, experts also believe the first rate rise will be bigger than anticipated, and will likely be followed by another one straight afterward.

Many economists had already earmarked June as the logical time when the cash rate would rise, but with the election looming, some have brought forward their estimate to May. The RBA will next meet to discuss rates on Tuesday, May 3.

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“It’s now a very close call as to whether the first hike will be in May or June,” AMP’s chief economist Shane Oliver said on Friday.

It is currently less than four weeks away until the election on May 21.

Mr Oliver said although the RBA would “prefer” not to lift the rates until the election was over, rampant inflation might force their hand.

“The RBA will prefer to avoid hiking in the election campaign and wants to see March quarter wages data due on 18th May before moving,” he wrote.

But this Wednesday, Australia’s central bank will release inflation data for the March quarter which “will likely further pressure the RBA to start raising rates”, Mr Oliver warned, because “business surveys and numerous anecdotes of price rises point to another surge in inflation in the March quarter”.

The consumer price index (CPI) is expected to be up 1.7 per cent compared to the last quarter — a level way above what the RBA had hoped for, at 0.7 or 0.8 per cent.

Mr Oliver said: “The likely further blowout in Australian inflation means that Australia is now starting to face the same risk as in various other countries that inflation expectations will get out of control locking in higher than target inflation, making it even harder to get inflation back down again.

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“As such if inflation comes in around our forecasts there will be a strong case for the RBA to hike in May.”

Were that to happen, it wouldn’t be the first time the rates rose right before an election.

In 2007, about two weeks before Labor’s Kevin Rudd won the federal election, the RBA hiked rates amid mounting pressure from a resources boom and large government spending sprees.