April rate rise now 50-50

The chances of a rate rise in ten days time must now be considered 50-50 and a near certainty by mid-year. The stream of positive domestic economic indicators seems to have no end at the moment and the 12 per cent jump in December quarter housing commencements revealed this week suggests the housing market is not going to weaken as quickly as first thought. Meanwhile the US Federal Reserve appears confident recovery is under way there, this week bringing a halt to a year of rate cuts and dropping its standard line that the risks being slanted toward weakness. The balance of risks here is already firmly tipped towards overheating rather than recession. The RBA must be thinking about moves to ward off inflationary pressure that may well build up if activity continues to improve across the economy. The biggest risk is that its forecast that inflation will settle back into its target range later this year may not come to pass. Much is being made of the belief that the RBA won’t make an upward move on rates before the US Fed. Just because it hasn’t happened before doesn’t mean it won’t happen. And if it was ever going to happen then this is the time with the Australian economy so out of sync with the US and the rest of the world. However, with the all-important March quarterly inflation figure not out until late in April, any move before then would almost certainly be confined to 0.25 percentage points.