Interest rate rise quite likely

In an effort to reduce inflation, the Central Bank of Australia is set to raise the benchmark interest rate in the first quarter.

According to economists and policy makers, it will be necessary to increase the Australian Central Bank's benchmark interest rate in the first quarter of the year. Doing so will help to reduce inflation which has begun to take hold of the country.

The rate will move up one quarter point to 7 per cent, most likely, and it will happen during the first quarter of the year.

Policy makers meet on 5 February and again 4 March to make this decision. According to most economists watching the Australian property market, and economy, Governor Glenn Stevens will need to increase the overnight cash rate target to quell the growing inflation here.

Many factors are contributing to this rise in inflation including the cost of home rents and the drop in wages. The rising energy costs also have contributed.

On the other hand, some economists believe that the Governor will hold the rate steady in hopes of riding the tide of what is happening with the US recession and housing market prior to making a change here.

According to Craig James, who is Chief Equities Economist from Commonwealth Bank of Australia out of Sydney, "Inflationary pressures are continuing to mount, placing further pressure on the Reserve Bank to lower interest rates in February." And, "Every economic reading released on 2008 has been super strong. The US economy may be teetering on the precipice, but the Australian economy is still climbing mountains."