Tip is two more RBA rate rises for year

BORROWERS can expect smooth sailing on interest rates for the next few months but face rises before year's end.

Mining trucks

BORROWERS can expect smooth sailing on interest rates for the next few months, but pundits predict the Reserve Bank will still tap the brakes twice before year's end.

Detailing its decision to keep the official cash rate on hold at 4.75 per cent this month, the RBA, in minutes released yesterday, said rates for home and business loans were already "a little above average levels".

With Australia's booming terms of trade and further likely big increases in mining investment, the level of rates was "appropriate" to ensure medium-term inflation stayed within the RBA's target range of 2 to 3 per cent.

"I would say you could read into this that they still feel as though they're ahead of the curve," said HSBC chief economist Paul Bloxham.

But he added that the RBA continued to highlight that the "medium-term story" for Australia "is very much intact". "And that is that there's a mining investment boom going on."

UBS strategist Matthew Johnson, who, like Mr Bloxham, is forecasting two rate rises before 2012, said he believed the RBA was trying to "steer the narrative back towards the big story" after the global and domestic natural disasters in recent months.

"They certainly don't indicate that they will be doing anything right now, but our view is they will be tightening rates in the third quarter," Mr Johnson said.

"They're getting back to talking about the Australian economy, the terms of trade boom, lots of investment -- this means we need higher rates and that's the story."

The RBA board said domestic demand appeared to be growing at a "solid" pace, and would likely "continue to do so in the medium term.

It believed Australian exports could be boosted by rebuilding in Japan.