Economists at HSBC believe that the Reserve Bank of Australia won’t raise the interest rates in March. However, the specialists note that the risks of inflation surge remain. In their view, in 2011 the RBA will increase its benchmark rate by 50 basis points from the current levels of 4.75%.

Although the markets are currently pricing in the rate hike in November, HSBC thinks that it will happen earlier. According to the analysts, Australian inflation has constrained by the strong national currency and low consumer demand. Now the situation’s changing and these factors won’t be holding down inflation anymore.

While the global inflation is going up, the country has an undersupply of housing and power stations that’s boosting rents and electricity prices. In addition, wages in Australia are also increasing.

Taking into account the current strength of the country’s economy, the central bank’s policy may be not tight enough. RBA is aware of these risks, HSBC. As a result, there a bunch of factors that that can justify the next rate hikes.



Chart. Daily AUD/USD