Momentum builds for rate rise today

The chances of the Reserve Bank lifting official interest rates appear to be growing by the hour, with the market now almost evenly spilt between those predicting a hike and those tipping that the bank will remain on hold.

Strong retail sales data and a spike on job advertisements (which jumped 4.4% in September) have commentators wondering if the RBA may start pushing rates higher from today.

While RBA Governor Glenn Stevens has made it clear that the current official interest rate of 3% is an “emergency setting” most rate watchers expected the first movement would not occur until at least November.

But more strong economic data has markets showing a 48% chance of a rate rise today, compared with a 20% chance late last week.

JP Morgan economist Stephen Walters is tipping an increase of 0.25% today thanks to what he calls as “a near uninterrupted stream of robust economic data”.

“The main driver for today’s rate hike, rather than a move on Melbourne Cup Day in early November, is what we perceive as the reluctance of key RBA officials to leave the cash rate at “emergency” settings for any longer than is necessary. In our view, the emergency that triggered the current extremely accommodative rate setting has passed.”

Macquarie Bank economist Rory Robertson is another expert tipping that the RBA will increase rates this afternoon by 25 basis points to 3.25%.

However, CommSec chief economist Craig James is one of those who expects the Reserve to remain on hold.

“We still believe it is a touch early for the Reserve Bank to be considering rate hikes. Sure, interest rates are at 49-year lows, but economic recovery is still in its infancy and inflation is well contained.”

SmartCompany will bring you the RBA decision live at 2:30pm so be sure to check back for all the latest news.