Economists split on rate rise

A survey of 22 economists shows that half expect the Reserve Bank to increase interest rates a quarter percentage point to 4.75 per cent next Wednesday, while the remaining 11 expect the next rate rise to be in July or August. The RBA said this month that inflation may accelerate next year, with consumer prices rising 2.9 per cent in the first quarter this year from 12 months earlier, which is near the top of the bank's 2-3 per cent target rate for annual inflation. The median expectation of the economists in the survey is of an increase to 5.25 per cent by the end of this year.

The Reserve Bank Governor, Ian Macfarlane, will probably emphasise the inflation risks and the strength of the domestic economy when he appears before the House Economics Committee this Friday, which will “set us up for a rate increase next week”, said Deutsche Bank's Tony Meer. His prediction was echoed by UBS Warburg's Mark Ryder, who also expects a June rate hike, and HSBC's John Edwards, who said that if exports continue to strengthen and the investment outlook is robust, Mr Macfarlane not only has a strong case for a further rate increase but for making the second next week.

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