Federal elections are always an interesting time. Plenty of promises, rhetoric, and grand schemes for the future.
Take what you will from Ms Gillard‘s and Mr Abbott’s election campaigning. However budding property buyers shouldn’t expect the federal election to stand in the way of a possible August rate rise.
The Reserve Bank of Australia (RBA) has warned it will not hesitate to raise the official cash rate during the height of the election campaign if inflation remains high.
In the RBA board minutes released yesterday, governor Glenn Stevens issued an unusually explicit warning that a high inflation reading for the June quarter next Wednesday might convince the board to raise rates at the next meeting.
“The important question for the board at its next meeting would be whether the new information materially changed the medium term outlook for inflation,” the minutes read.
According to Mr Stevens, the coming month would also see important announcements about the health of the European banking sector, which had the potential to have a significant impact on financial markets and global confidence.
There will also be an updated reading on domestic prices, which is expected to show further moderation in the year-ended underlying rate, although underlying inflation is likely to remain in the top half of the target range over the period ahead.
If this pans out, the RBA may be forced to hike the official cash rate in order to get underlying inflation back under control. This will translate into higher repayments for borrowers with variable rate mortgages.
However, any increase to the official cash rate would not come as a complete shock to many Australians, with some economists having already predicted an RBA rate rise in August.
Smart Property Investment columnist and AMP’s chief economist Shane Oliver last month said that he expected the RBA to lift rates during the third quarter.
“The RBA will lift the official cash rate sometime over the next quarter, and could very well lift in August,” he said.
“Originally I had expected rates to hit 5 per cent by the end of the year, but we have now revised this forecast down to 4.75 per cent.”
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