Australia’s cash rate still likely to rise later this year

The Reserve Bank (RBA) meets on Tuesday and is almost certain to keep its policy rate on hold at 4.5%, given that Q2 consumer price data were softer than expected. Nonetheless, the mining boom will bring above-trend GDP growth over the next few years and there is already little spare capacity in the economy. The upshot is that inflation is still likely to trend higher later this year and in 2011. Therefore, we expect the RBA to resume its tightening cycle in Q4.