Aussies stun with rise in rate
Source: Agencies |
November 3, 2010, Wednesday
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Print Edition
Print Edition
AUSTRALIA'S central bank raised its key interest rate in a surprise move yesterday that aims to curb higher inflation as the nation's economy booms amid strong Asian demand for iron ore and other minerals.
The Australian dollar shot up more than one US cent to briefly trade above US$1 after the decision to raise the rate by a quarter percentage point to 4.75 percent - the first hike since May. The currency's move upward reflects that investors expect higher interest rates to lure more foreign money into the country.
The decision was a surprise to most analysts who had predicted there would be no change after figures last week showed lower-than-expected inflation of 2.4 percent in the September quarter.
But the Reserve Bank of Australia said it expected inflation to rise because of the country's mining boom - which is being driven by China, India, South Korea and Japan.
The bank said Australia's economy is facing a "large expansionary shock" because of the high prices its mineral exports are fetching overseas. Australia's terms of trade - a measure of how much is exported for every dollar of imports - is at its highest since the 1950s, increasing the country's wealth.
"Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains," Reserve Bank Governor Glenn Stevens said in the statement. "The board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent."
The Reserve Bank also cited strong economic growth and demand for labor in Australia, and said turmoil in international financial markets earlier in the year had abated.
The Australian dollar shot up more than one US cent to briefly trade above US$1 after the decision to raise the rate by a quarter percentage point to 4.75 percent - the first hike since May. The currency's move upward reflects that investors expect higher interest rates to lure more foreign money into the country.
The decision was a surprise to most analysts who had predicted there would be no change after figures last week showed lower-than-expected inflation of 2.4 percent in the September quarter.
But the Reserve Bank of Australia said it expected inflation to rise because of the country's mining boom - which is being driven by China, India, South Korea and Japan.
The bank said Australia's economy is facing a "large expansionary shock" because of the high prices its mineral exports are fetching overseas. Australia's terms of trade - a measure of how much is exported for every dollar of imports - is at its highest since the 1950s, increasing the country's wealth.
"Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains," Reserve Bank Governor Glenn Stevens said in the statement. "The board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent."
The Reserve Bank also cited strong economic growth and demand for labor in Australia, and said turmoil in international financial markets earlier in the year had abated.
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