Australians should brace for an interest rate rise tomorrow after more than two-thirds of economists surveyed by AAP said a hike was highly likely.
Eleven of the 16 economists surveyed forecast the Reserve Bank of Australia (RBA) will increase the cash rate by a quarter of a percentage point after its board next meets on Tuesday in Sydney. Five economists said the RBA would keep rates on hold.
"A strong labour market and very robust business expenditure are all adding up to a very good dynamic for the domestic economy, which we don't think the RBA will be comfortable in continuing to ignore," Commonwealth Bank economist James McIntyre said.
Strong jobs and capital expenditure data in February prompted the central bank and many economists to revise up the chances of the first rate rise this calendar year.
The RBA raised the cash rate by 0.25 per cent each in October, November and December last year to the current rate of 3.75 per cent.
Mr McIntyre noted the 2010/11 capital expenditure figures by the Australian Bureau of Statistics (ABS) suggested a 20 per cent increase in business investment.
"Despite the fact that there was quite a stimulus boost to the December outcome through the commercial vehicles in particular and the equipment appreciation bonus ... the expectations component of the capex was particularly strong," Mr McIntyre said.
ABS figures showed new private capital expenditure rose 5.5 per cent, seasonally adjusted, in the December quarter, while the unemployment rate was a seasonally adjusted 5.3 per cent in January, down from an unrevised 5.5 per cent in December.
Total construction work rose 2.6 per cent in the December quarter in chain volume terms, seasonally adjusted.
Most economists surveyed by AAP said the cash rate would increase by between 75 and 125 basis points, from 3.75 per cent, by the end of the September quarter.
ANZ economist Shane Lee said the balance and risks around inflation had led him to forecast a 25 basis point increase in the cash rate for next week.
"The unemployment rate has come back a little bit, the economy's got a bit of spare capacity but as the economy and the labour market continue to recover, and spare capacity gets used up, then there's risks around inflation remaining within the target over the medium term," Mr Lee said.
He said the most recent capital expenditure figure and the construction work done had fed into the rate forecast.
"The data pushed the forecasts up a little bit, but my feel is we're a little bit low on the government stuff, given that public investment seems pretty strong in the quarter."
However, St George acting chief economist Justin Smirk predicted the central bank will stay on the sidelines in March. "We are seeing signs of the housing sector and the interest rate-sensitive sectors responding to higher rates and the removal of fiscal stimulus," Mr Smirk said.
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