From Bloomberg, an article that made me proud of my home country....
Australia, the first Group of 20 nation to raise interest rates since the height of the global financial crisis, has signaled further increases in coming months.
Reserve Bank Governor Glenn Stevens unexpectedly boosted the overnight cash rate target yesterday by a quarter percentage point to 3.25 percent, saying the justification for a benchmark rate at a half-century low “has now passed.”
The Australian Dollar jumped after Stevens said Australia’s economy, which expanded during the deepest global recession since the 1930s and avoided the worst of the credit crisis, will strengthen faster than its major peers. Rising job vacancies, retail sales, house and stock prices, plus surging business and consumer confidence may prompt more rate increases.
Global Rates
The European Central Bank will leave its benchmark rate at a record low of 1 percent tomorrow, according to analysts surveyed by Bloomberg. The U.S. Federal Reserve kept the rate for overnight loans between banks at a record low of between zero and 0.25 percent on Sept. 24.
“The fact the Reserve Bank chose to pull the pin shows they’ve got a lot of confidence in the economy,” said Joshua Williamson, a senior economist at Citigroup in Sydney. “The view about this from abroad will be a little bit bemused -- here’s this little antipodean economy that’s doing well.
‘Risk Passed’
“The risk of serious economic contraction” in Australia has passed, Stevens said in a statement yesterday. “The board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy,” he added. “This will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.”
Yesterday’s increase means households with an average-sized mortgage of A$250,000 ($222,000) will pay an extra A$40 a month in repayments.
Unemployment Rate
A report tomorrow will show the unemployment rate rose to 6 percent last month from 5.8 percent, according to the median estimate of 20 economists surveyed by Bloomberg. By contrast, Europe’s jobless rate climbed in August to a 10-year high of 9.6 percent, and reached 9.7 percent in the U.S., the highest level since 1983.
Consumer confidence jumped last month to the highest level in more than two years, a Westpac Banking Corp. report showed on Sept. 9. Business sentiment climbed in August to the highest level in almost six years, according to a separate report.
“Overall, growth through 2010 looks likely to be close to trend,” Governor Stevens said. “Unemployment has not risen as far as had been expected.”
Analysts including Citigroup’s Williamson estimate trend gross domestic product growth is currently between 2.75 percent and 3 percent.
Stock, House Prices
“I think the Reserve Bank will move quite slowly” on future moves with quarter-point increases “every couple of months or so,” he said.
Consumer spending, stoked by A$20 billion in government cash handouts to households, helped fuel a 1 percent expansion in Australia’s GDP in the first half of this year.
The government is also boosting domestic demand by spending an extra A$22 billion on roads, railways, ports and schools.
“Housing credit growth has been solid and dwelling prices have risen appreciably over the past six months,” Stevens said today.
The Reserve Bank scrapped its forecast in August for the economy to contract this year, instead predicting GDP will rise 0.5 percent. The bank expects growth will accelerate to 2.25 percent in 2010 and 3.75 percent in 2011.
“There’s a risk they’ve gone too early,” said Prasad Patkar, who helps manage about $1.2 billion at Platypus Asset Management in Sydney. “The recovery may not be all that well entrenched and yet they’re starting to unwind the stimulus.”
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