Next rate hike ‘won’t happen this year’

THE Reserve Bank will not need to contemplate rate hikes until early next year at the earliest, according to former board member John Edwards.

Dr Edwards, who warned last month that the cash rate would have to rise dramatically if the RBA’s economic forecasts were accurate, says an increase is unlikely this year.

In a paper for think tank the Lowy Institute late last month, Dr Edwards said that based on the central bank’s economic projections, borrowers should brace for eight increases to the cash rate over the next two years.

But in an interview broadcast yesterday, he clarified that he did not foresee any rate hikes this year.

Dr Edwards told Bloomberg television that he did not “expect the RBA to need to face the issue of tightening until the first quarter of next year at the earliest”.

Australia was not experiencing any inflation pressures and economic growth was slightly below the long-term trend, so he concluded “tightening doesn’t arise at this point”.

In his piece for the Lowy Institute, Dr Edwards had said the cash rate was “way below” where it needed to be should the RBA’s economic growth and inflation forecasts pan out.

The cash rate would need to be hiked from 1.5 per cent to 3.5 per cent by the end of 2019 if Australia’s economic growth rate was to return to 3 per cent in the next few years, as the RBA expected, he said.