Pressure builds for further rate rise

Interest rates may well rise for the second month in a row next week. After the quarter-percentage point rise in May, official comments by RBA governor Ian Macfarlane and the latest economic data suggest further rises in interest rates are imminent. If the RBA is to move as early as next week another 0.25 percentage point lift is the only likely scenario with nothing to suggest it needs to hit the panic button and opt for a bigger rise. In very candid Parliamentary testimony on Friday, Mr Macfarlane said the Bank remains of the view that, with economic growth remaining solid, interest rates need to rise from their current low levels. He said the main risk to the economy currently is “that the expansionary forces in the economy would increase to an excessive degree, bringing with it the likelihood that inflation would rise from its present position at the top of our target range to something in excess of it.” Meanwhile, business investment and retail spending data also do no harm to the chances for a rate hike. Business’ investment plans over the next year continue to improve while actual investment spending in the March quarter is up on last year despite a 3.2 per cent fall from the December quarter buoyant result. Retail trade grew 0.9 per cent in seasonally-adjusted terms in April as consumer spending continues to provide a healthy stimulus to the economy. This paints an economic picture necessitating higher interest rates, and sooner rather than later.