RBA inflation patrol swings into action

HOME owners are bracing for higher mortgage repayments after the Reserve Bank signalled it would focus on the mining boom.

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HOME owners are bracing for higher mortgage repayments after the Reserve Bank signalled it would focus on the booming mining industry rather than softness in the broader economy when setting the official interest rate.

Economists reaffirmed their forecasts that the RBA would start its next tightening cycle in the coming months after minutes from the central bank's May 3 board meeting confirmed its hawkish position on monetary policy.

The RBA made it clear in the minutes that it sees its role as containing inflationary pressures stemming from the commodities supercycle, leaving the challenges of managing Australia's two-speed economy to the Federal Government.

"Members noted that the significant divergences between different sectors of the economy presented challenges for policy-making, but that monetary policy had to be set for the needs of the overall economy," the RBA minutes, released yesterday, stated.

"In this respect, members judged that if economic conditions continued to evolve as expected, higher interest rates were likely to be required at some point if inflation was to remain consistent with the medium-term target."

The mining boom is expected to speed up inflation -- or price increases for consumer goods and services -- because resources companies are offering big wages in an attempt to lure the hundreds and thousands of additional workers required each year.

This, in turn, flows through to the cost of living, even though many households are struggling in the face of soaring prices for petrol, utilities and groceries and non-mining industries such as tourism and manufacturing are suffering from the record-high Australian dollar.

HSBC chief economist Paul Bloxham said the minutes suggested the RBA was planning its next interest rate rise in July or August.

"The risk that commodity prices drive a sharp rise in domestic inflation is clearly front-and-centre in the RBA's thoughts," he said.

"That is, they have learned from previous experience, which will probably make them more hawkish."

The RBA has left the benchmark interest rate steady at 4.75 per cent for six months after seven increases between October, 2009, and last November.