1 Nov 2010

RBA rate decision awaited

6:19 pm on 1 November 2010

Latest inflation data has muddied the waters on whether the Reserve Bank of Australia will raise the official cash rate on Tuesday.

Radio New Zealand's Sydney correspondent reports an increase had been seen as a high probability until last week's September quarter CPI data.

That showed inflation remarkably well behaved, with the headline CPI up just 0.7% in the quarter and the bank's preferred underlying rates even more contained.

Core inflation is running at an annual rate of 2.3%, close to the bottom of the bank's target band of 2% to 3%. A big part of that is the deflationary impact of the strong Australian dollar which reached parity with the Amercian dollar earlier this month for the first time since it was floated in 1983.

Some economists believe the CPI has given the bank reason enough to extend its five-month pause on cash rates when it meets on Tuesday.

However, others think the lack of spare capacity in the economy will force the seventh rate rise in 12 months.

The OCR was raised to 4.5% on 5 May.