After the government forecast showed inflation will not overshoot target for the year, the Australian central bank has decided to leave the interest rates unchanged.
The Reserve Bank of Australia has left its benchmark lending rate unchanged at 4.75% for the fourth month in a row.
Justifying its decision, it said a number of factors, including a strong domestic currency, have helped cool down inflation.
However, not everybody is convinced that inflation will remain under control and some analysts fear inflation to rise after a month or two.
“I see two rates hikes this year, with the second one around September”, said Stephen Roberts of Nomura.
A global surge in commodity prices and a low domestic unemployment rate has been driving the growth of Australian economy. Analysts fear that this may fuel a demand surge pushing consumer prices up.
The Australian Bureau of Statistics had earlier reported a stronger than expected growth in retail sales. January sales had risen by 0.4%, the bureau reported.
There are also fears of extensive damages caused by Queensland flood pushing up prices of essential commodities further, thus fuelling inflation.
“Production losses due to weather are temporarily raising prices for some agricultural produce, but these should fall back later in the year”, said the central bank downplaying risk of an supply driven inflation.
“Overall, looking through these temporary effects, the Bank expects that inflation over the year ahead will continue to be consistent with the 2-3% target,”, the central bank added.
The bank said other factors like strong competition in key markets and decline in wage growth will keep inflation under check, apart from the strong domestic currency.