Next move still likely to be up: RBA chief

Reserve Bank governor Glenn Stevens has indicated interest rates will remain on hold for the immediate future, but the next move is still likely to be up.

The bank lifted rates by 25 basis points to 4.75 per cent earlier this month, but the banks passed on much larger increases to their lending rates because of rising funding costs.

Mr Stevens, appearing before a parliamentary committee today, said monetary policy was now ''a little tighter than average''.

''Of course, we are aware as well that, particularly for business borrowers, non-price conditions remain tighter than they were for some years prior to 2008. Overall, and also taking account of the exchange rate, which has risen substantially this year, we judge this to be the appropriate setting for the period ahead,'' he said.

''As the minutes from the board meetings show, recent decisions were finely balanced. Quite reasonable arguments could have been made to wait a little longer before taking this step. Good arguments could also be offered as to why, when we looked ahead, it was prudent to take an early modest step in the tightening direction. On balance, the board judged that to be the better course.''

However, he has indicated that rates are more likely to go up than down over the coming years because of the inflationary impact of the commodities boom.

''Over the coming year, we think that inflation will be pretty close to where it is now, consistent with the target. But looking further ahead, in an economy with reasonably modest amounts of spare capacity, the terms of trade near an all-time high and the likely need to accommodate the largest resource-sector investment expansion in a century, it is pretty clear that the medium-term risks on inflation lie in the direction of it being too high, rather than too low,'' he said.

Source: The Canberra Times