Former Reserve Bank board member John Edwards says the central bank could lift interest rates several times over the next two years.
The predictions come after the RBA’s recent forecasts that they predict the inflation rate to finally rise to target after a lengthy sluggish spell and they predict economic growth to rise to 3 per cent amid a stronger global backdrop.
Mr Edwards made the comments on the Lowy Institute for International policy website and said the RBA will want to start tightening in 2018 and to achieve its goal will need to implement four quarter-point increases each year for the next two years.
“It seems to me that something like eight quarter percentage point tightenings over 2018 and 2019 are distinctly possible, if the RBA’s economic forecasts prove correct,” he said.
“It’s possible the tightenings could start earlier, or if not the tightening itself, at least the signalling which should precede it. We may be seeing a little of that now.”
It probably doesn’t come as much of a surprise that Mr Edwards says the RBA currently thinks its record low interest rate of 1.5 per cent is exceptionally low.
Mr Edwards says if the economy does grow and progress at around 3 per cent with 2.5 per cent inflation as predicted, the RBA would consider an interest rate of around 3.5 per cent as sustainable and a natural rate, and will want to achieve that by 2019 to match it.