Home Loan Repayment

By Robert Carry

The Reserve Bank of Australia (RBA) has warned that inflationary pressure will build next year as the economic recovery gathers pace.

Minutes from the RBA's meeting earlier this month revealed that the group felt it would be "possibly imprudent" to keep rates at the 3.0% level. However the minutes also indicated that the RBA was cautious that the economic recovery might stall as Government's stimulus measures were reigned in.

The minutes have added further weight to market predictions that the RBA would increase rates to 3.75% before the end of the year.

"At this stage the Reserve Bank looks likely to raise rate in both November and December," said Savanth Sebastian, economist with CommSec. "The magnitude of the interest rate hikes will depend on the inflation data released on October 28. However CommSec is not ruling out the possibility of a 50 basis point rate hike in November followed by a further 25 basis point hike in December."

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