Bank tipped to lift rates by year's end

SYDNEY - A majority of economists now say Australia's central bank will raise interest rates again before the end of this year amid a 30-year-low unemployment rate and faster-than-expected economic growth.

Thirteen of 24 economists surveyed by Bloomberg News say the central bank will raise the overnight cash rate target to at least 6 per cent by the end of the year, up from 11 of 23 economists in a survey on June 9.

Ian Macfarlane, Governor of the Reserve Bank of Australia, on May 3 raised the benchmark interest rate a quarter point to 5.75 per cent to stem inflation, which was at the top of the bank's target range in the first quarter. The economy expanded faster than expected in the first quarter and employment surged in May, prolonging a worker shortage that is fuelling wages growth.

"The next inflation report, due in July, will be the smoking gun for the central bank and will make them want to move again," said Jarrod Kerr, an economist at JPMorgan Chase in Sydney, who predicts a rate increase by September.

"The economy's bouncing into capacity constraints in the labour market. To try to keep inflation below 3 per cent, the bank will have to tighten monetary policy further."

Governor Macfarlane, 59, who retires in September after 10 years as central bank chief, left the benchmark rate unchanged in June after the May increase.

The annual inflation rate was 3 per cent in the first quarter. The central bank aims to keep the inflation rate between 2 per cent and 3 per cent.

The Government's second-quarter inflation report is due on July 26. All 24 economists surveyed expect the bank to leave rates unchanged in July, and only seven forecast a rate increase by September.

The central bank's rate-setting board next meets on July 4 and announces its decision the following day at 9:30am in Sydney.

The economy created 56,000 jobs in May, more than four times as many as expected. The unemployment rate of 4.9 per cent was the lowest in 30 years.

Economic growth was 0.9 per cent in the first quarter from the previous three months. The economy expanded 3.1 per cent from a year earlier, the fastest pace since the third quarter of 2004.

Wages grew 4 per cent in the first quarter from a year earlier, just below the record 4.2 per cent pace of the previous quarter.

- BLOOMBERG