This month, the RBA has decided to maintain the official cash rate at the record-low 0.1 per cent.
While the RBA has kept rates on hold this month, AMP Capital chief economist Shane Oliver said the conditions for a rate hike will be in place by June.
“The RBA’s objective of full employment has been reached, wages growth is picking up and inflation is pushing well above target with a rising risk that inflation expectations will start to rise in which case it will become self-feeding. And the Budget will pucks in more stimulus this year,” said Mr Oliver.
Economist Saul Eslake predicts that the first-rate increase will come in August.
Mr Eslake said while there is a legitimate case for the RBA to start raising rates as early as this month, the Board of the RBA has made it quite clear that they’re not satisfied that underlying inflation is “sustainably” within their 2-3 per cent target band.
“Moreover, the principal criterion that they’ve stipulated for becoming satisfied that underlying inflation is sustainably within their target band, namely, wage inflation of at least 3 per cent, is still some way from being met.
“So, I remain of the view that the first increase will come after the June quarter CPI – which means the August meeting. If that means that the Australian dollar weakens against the US dollar because the Fed may have raised its fund rate by another 50-75 basis points by then, I think the RBA will welcome that.”
University of Western Australia Professor Jakob Madsen said the supply shocks have pushed inflation up.
“However, I believe that the core inflation will start increasing as the inflation builds into expectations and wage aspirations given the overheated labor market within certain sectors,” said Mr Madsen.
“This will bring the core inflation beyond the 2-3% RBA inflation target and spur an interest rate increase.”
