Australia May See More `Surprise' Rate Increases, Nomura's Roberts Says

The Reserve Bank of Australia may deliver more “surprise” pre-emptive interest rate increases because inflation is likely to accelerate over the next two years, according to Nomura Holdings Inc.

Substantial increases in business investment through 2012 may overshadow the country’s efforts to restrain inflation, Stephen Roberts, a senior economist at Nomura Australia Ltd., wrote in a report dated Nov. 12. The RBA is likely to boost borrowing rates to limit growth in household spending, with two 25-basis-point increases likely, including one in December, according to the report.

“Inflation has been well-contained, but is set to rise over the medium term,” Roberts wrote. “We see the Reserve Bank acting pre-emptively and possibly delivering more rate-hike surprises to the market.”

RBA Governor Glenn Stevens unexpectedly raised the overnight cash rate target by a quarter point to 4.75 percent this month, ending a five-month pause.

Australian consumer prices gained 2.8 percent in the third quarter from a year earlier. The central bank aims to keep annual inflation in a range of 2 percent to 3 percent on average.

To contact the reporter on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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