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* RBA says can't wait indefinitely to tighten given inflation
* Leaves door wide open for rate rise at Nov. 2 meeting
* Market reluctant to wager on a move after Oct shock (Adds market reaction)
SYDNEY, Oct 19 (Reuters) - Australia's central bank said its decision to not raise rates this month was "finely balanced" and that it could not wait "indefinitely" to tighten given long-term risks to inflation, lifting the odds of a rate hike next month.
In the minutes of its October meeting, the Reserve Bank of Australia (RBA) said a case could have been made to hike this month, and stressed that rates would "need to rise at some point".
Its hawkish stance was enough to get some investors betting
on rates rising 25 basis points from 4.5 percent at the RBA's
next policy meeting on November 2. The Australian dollar
"On balance, there's probably enough to get the RBA across the line in November if inflation comes broadly in line with the RBA's 2.5-2.75 percent forecast for the third quarter," said Scott Haslem, an economist at UBS.
"The tone of the the RBA's comments suggests higher rates
is just a matter of time."
Australian economy at a glance http://link.reuters.com/syh88p
For a graphic on rates: http://link.reuters.com/wed86p
Australia resource rush to last years [ID:nSGE68005U]
Inflation more dangerous than debt
[ID:nSGE68R00P]
Indeed, the RBA said its decision to leave rates unchanged was pending evaluation of further information at its November 2 meeting, which would come just after the release of third-quarter inflation data.
It said a year-end inflation of around 3 percent, with underlying inflation at between 2.5-2.75 percent, would be in line with its expectations.
In explaining its surprise decision to not hike this month, the RBA said it felt it had the flexibility to wait due to a rising Australian dollar, soft domestic credit growth and a weak global growth outlook.
"While the board recognised that it could not wait indefinitely to see whether risks materialised, members judged that they had the flexibility to do so on this occasion," the RBA said. "The timing of adjustment remained a matter of judgment."
ONCE BURNT
The RBA's policy decision this month caught out many investors who saw a 75 percent chance of rates rising to 4.75 percent, in part due to the bank's hawkish remarks about how rates have to go higher.
That bank's surprise move burnt many rate investors and left them wary of leaning too far on tightening bets.
Implied rates showed the market was priced for just a 40
percent chance
As some had suspected, the RBA cited the rising Australian dollar and its tightening effect on domestic monetary conditions as among reasons why it decided to keep policy on hold.
A solid domestic economy driven by rising commodity prices,
a hawkish central bank and relatively high interest rates have
helped the Australian dollar
That ranks it as the second best-performing major currency, after the yen.
The RBA noted that further gains in the Australian dollar would help temper price pressures and keep underlying inflation within its target 2-3 percent in the near term.
On the domestic economy, the RBA was cautiously upbeat.
It said business investment was expected to pick up in the next few years, and that the resilient jobs market was holding up, although growth in labour demand may be moderating.
It noted consumers remained cautious and that growth in mortgage and credit card debt was slowing. The property market was cooling as well, but it said that was welcome given the long-term rise in house prices and household debt.
The central bank also sounded cautiously upbeat on developments abroad, especially with regards to Australia's top export market China. It said recent Chinese data had been stronger and lessened risks of a significant slowdown there. (Reporting by Koh Gui Qing; Editing by Wayne Cole & Kazunori Takada)