Could we be on the cusp of more interest rate rises than we thought from the Reserve Bank?

The question arises after the Reserve Bank again said it would be “prudent’ not to hold back on an interest rate rise at the board meeting earlier in this month.

It was the third time in seven months that the central bank has expressly used the word “prudent” or a variant to justify a rate rise, especially one that was needed sooner rather than later.

The minutes of the April 6 meeting, released this morning, said:

“In the view of the board, with forecasts suggesting that growth in the domestic economy in 2010 would be around trend and that inflation would be around 2½ per cent, consistent with the medium-term target, the level of interest rates in the economy would be expected to be close to average.

“This remained the underlying rationale for consideration of any adjustment to the cash rate in the current period. Since lending rates were still a little below average, members expected that they would probably need to rise further in the period ahead.

“On the question of timing, the fact that the prospective rise in the terms of trade was now likely to be noticeably stronger than had been expected was a factor suggesting that it might be prudent not to delay adjustment. Overall, members considered that the outlook for the economy suggested that there was a case for a further step in the process of returning interest rates to more normal levels.”

Last November the board used the word ”prudent” support the second rate rise after October’s start.

In October it used the stronger  “imprudent” to justify lifting rates and starting the tightening of monetary policy that has continued through this month.

Rather than delay a rate rise another month, the RBA board decided to push them up to 4.25%. Some commentators had been looking for a form of words in the minutes that would signal an approaching pause.

The wording in the April 6 minutes leaves future rises open ended, especially with the coming surge in our terms of trade specifically mentioned and part of the justification for moving rates this month.

Interestingly, the word “prudent” didn’t appear in the statement from governor Glenn Stevens after the April 6 meeting.

“On balance, members concluded that the evidence that had become available recently had confirmed that it remained appropriate for interest rates to move gradually towards normal levels, and that it was timely to take another step in that direction,” Stevens final words in the statement read.

The minutes are far more explicit about the need for an immediate rate rise than the statement.