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REITThe consensus that interest rates in Australia are unlikely to change for a few months will not be challenged by the minutes of the central bank’s latest monetary policy meeting.

The minutes of the Reserve Bank’s board meeting on March 1 gave no indication another interest rate rise – the last was back in November – was imminent.

Key to this outlook was a steady outlook for economic growth and inflation, aside from the transitory effects of wild weather, which would boost inflation and depress growth over the December and March quarters before having the opposite effects later in 2011.

‘‘Overall, the economy appeared to be growing at close to its trend rate and the outlook for inflation over the year ahead was consistent with the target,’’ according to the minutes, released today.

The RBA adopted a medium-term target of two to three per cent for inflation in 1993 and inflation has averaged a pace very close to the centre of that range since then.

Much of the discussion of domestic conditions was around the effect of the floods and Cyclone Yasi, but the minutes reiterated the RBA’s determination not to be distracted by these short-term effects.

‘‘Domestically, extreme weather events were now being reflected in some measures of economic activity,’’ the RBA said in the minutes.

The RBA’s staff estimated the flooding in the eastern states ‘‘could take around half a percentage point off growth (in gross domestic product) in each of the December and March quarters’’.

‘‘The effects of Cyclone Yasi would also add to CPI (consumer price index) inflation in the short run, but those effects were likely to be reversed later in the year,’’ the bank said.

‘‘Members confirmed that the board’s approach would be to look through temporary effects caused by extreme weather events and to continue to set monetary policy based on the medium term outlook for growth and inflation.’’

The minutes noted ongoing upward pressure on commodity prices and the looming resources investment boom which would ‘‘take investment in that sector to a level that was unprecedented as a share of GDP’’.

Given that, along with the unemployment rate already at a low five per cent and the RBA’s latest official forecasts – in the quarterly monetary policy statement in February – already showing inflation heading to the top of the target range over the coming two years, the main risk for the future is still rising inflation rather than slowing growth.

Accordingly, the odds still favour another increase or two in the cash rate from the current 4.75 per cent.

Still, the minutes show no sign the RBA is contemplating such a move in the next few months.

AAP

Tags: economy, finance, interest rates, mortgage, property, reserve bank

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