RBA could raise cash rate in May, says JPMorgan

A figure from financial giant JPMorgan has predicted that the Reserve Bank of Australia (RBA) will hike interest rates again in May, after opting against an increase earlier this month.

In comments which could influence consumers considering opening  or taking out home loans, the firm's Stephen Walters told RTT News that the central bank is acutely aware of the inflationary pressures presented by a fresh mining boom.

He implied that the reconstruction process following last week's Japanese earthquake and tsunami is likely to prove commodities-intensive, thereby meaning that the country's demand for Australian products could rise sharply.

But Mr Walters pointed out that the economic uncertainty created by the disaster - which has impacted stock markets across the globe this week - may mean that the RBA adopts a cautious short-term approach to possible cash rate rises.

Minutes from the RBA's most recent summit on the matter were published today (March 15th 2011), but Mr Walters pointed out that given the extraordinary nature of recent events, they give little indication as to the bank's future policy.

"These minutes, for example, don't reflect the impact of the latest escalation of tensions in the Middle East or, of course, the earthquake that hit Japan," he commented.

In the minutes, the RBA noted that the stability of the Australian banking sector had improved to near pre-recession levels, but acknowledged that household spending had been reined in somewhat over recent weeks.

However, members of the rate-setting committee did not believe that the overall economic outlook had changed significantly enough to warrant an increase in the base rate and therefore voted in favour of holding it at 4.75 per cent.