There are increasing expectations that the Reserve Bank of Australia (RBA) might raise interest rates at the February meeting, and the Commonwealth Bank of Australia expects its monetary policy board to hike rates by 25 basis points, the bank's Chief Economist Luke Yeaman said in a note on Monday.
The note cited trimmed mean inflation, which is sitting well above the target band for two quarters, a strengthening economy, and a falling trend in unemployment. However, there is a risk that the central bank continues with its patient approach.
The central bank's strategy has been to bring inflation down only gradually and avoid a larger increase in unemployment, with data supporting the strategy.
Economic growth in the country is already running at around 2.1%, and the bank's forecasts have it lifting further to around 2.4% by the end of the year. Unemployment is still historically low at just 4.1%.
Previously, Australia's economy faced a series of supply‑side shocks, with public spending and strong population growth supporting the economy, while private sector activity was in recessionary territory. Now, the economy is also facing pressure from the demand side, and with little room to maneuver on the supply side.
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