The Reserve Bank of Australia looks almost certain to raise rates as the Australian economy steadily improves. According to the RBA Governor, Glenn Stevens, the primary factor possibly preventing future rate increases is the uncertain outlook of the global economy, although there’s also the conflicting possibility of a surge in household and business spending.

Stevens implied current rates are appropriate in the meantime. However, analysts including UBS strategist Matthew Johnson note that last time the governor was quoted making a similar statement in February, a rate increase of 25 basis points soon followed in each of the subsequent  three meetings.

Rates are expected by some analysts to increase in October. Stevens noted that the economy has steadily improved due to the government stimulus package, but now the private sector was strengthening. A tremendous increase in business investment is expected, as companies plan to stock up inventory for the upcoming holiday season.

The RBA will also be paying very close attention to August job figures, as an indication of which direction consumer spending may turn. If consumer spending and massive business investments both multiply at the same time, the fear is this would lead to a rapid rise in inflation, therefore requiring the RBA to take bold actions.

Prior to Mr. Stevens’ comments, investors and financial markets were expecting rates to be cut, but global markets have been much smoother in the recent months, post the immediate Greece debt crisis. However, Governor Stevens did issue caution, stating that he expected economies across the world to grow at a slower pace, especially in the United States, Europe, and even China.

Source:  http://www.theaustralian.com.au/