Interest rates should remain stable for the near future, thanks to a slowdown in inflation.
The Consumer Price Index (CPI), released last Tuesday, showed that headline inflation moved ahead just 0.1% in the March quarter, for an annual pace of 2.4%. This is well within the Reserve Bank of Australia's annual inflation target of 2-3%, leading analysts to predict interest rates will remain on hold for some time.
The Australian Industry Group reacted to the announcement by saying it believes the official interest rate of 6.25% should remain on hold for an extended period.
Bill Evans, chief economist at Westpac Bank, said the lower than expected headline inflation would make an interest rate hike in May or August unlikely, but warned that the risk of a rise was still there. He predicted a rise to 6.5% in early 2008.
Speculation about stable interest rates may also take some of the heat out of the Australian dollar, currently trading at a 17-year high against the US dollar at 82.9 US cents.
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