The RBA indicated today it could still move interest rates higher this year, after it kept rates on hold for the fourth straight month.

The Reserve Bank of Australia governor Glenn Stevens inserted the words “for the time being” in his accompanying statement when saying that the current monetary policy setting was appropriate. Those words were absent from his August statement.

The central bank met the expectations of financial markets and economists by keeping the official cash rate steady at 4.5 per cent for September.

Economists believe inflationary pressures will begin to emerge as a problem for the Australian economy, especially as the nation exceeds growth expectations.

In the June quarter, the economy grew by 1.2 per cent, the fastest quarterly pace in three years – the growth translated to 3.3 per cent for the year.

The economy is also expected to show more signs of strength this Thursday, when the August unemployment rate is tipped to fall from 5.3 per cent to 5.2 per cent.

The RBA last lifted interest rates in May, one week before the federal budget.

Mr Stevens said today that while the government’s $43 billion worth of stimulus was beginning to fade out of the economy, there were signs that consumers were beginning to become more positive.

“Recent information suggests that the Australian economy has been growing at around trend pace,” he said.

“This has been helped by high levels of public spending over the past year but private demand has also been firming.

“The high level of the terms of trade is boosting incomes, which will tend to add to demand over the year ahead while the effects of expansionary policy measures will be diminishing.

“Indications are that business investment in particular could increase strongly.”

The statement gave the financial markets the indication that interest rates could be hiked in the next few months, possibly before the end of the year.

“With growth in the near term likely to be close to trend, inflation close to target and with the global outlook remaining somewhat uncertain, the board judged this setting of monetary policy to be appropriate for the time being,” Mr Stevens said.

Despite the prospect of higher rates, the Australian dollar has been sold off after the RBA’s announcement. The local currency moved from US91.72c, to US91.40c.

(Source: TheAustralian.com.au)