Reserve bank optimism brings rate rises closer

The Reserve Bank says it might have been “imprudent” to leave Australia’s interest rates on hold, earlier this month.

It made this observation, while explaining, in minutes released today, why it had increased its marker interest rate by 25 basis points then.

The bank’s assessment of Australia’s prospects, in the wake of the global economic crisis, was quite upbeat.

Indeed, it said the nation’s economic growth rate might be “close to trend” in 2010, if there are no further setbacks.

That leaves the prospect of further rate rises wide open.

And bank economists are already predicting that there could be a second rate rise as early as next month.

The Reserve Bank noted that while Australia’s headline inflation rate is still below its 2-3 per cent annual target rate, underlying inflation – which excludes seasonal and other short term factors – is still above it.

That, too, hardens the possibility of further rate rises in the near future.

“Overall (board) members concluded that while downside risks to the economy could not be ruled out, tyhey had diminished significantly over recent months,” the minutes said