Australia's Central Bank Raises Key Interest Rate to 7 Percent, the Highest Level Since 1996.
Australia's central bank raised interest rates Tuesday by 25 basis points to 7 percent, putting domestic inflation risks ahead of global worries and bringing the cash rate to its highest level since 1996.
Tuesday's increase was widely anticipated by market watchers. It was the eleventh since mid-2002 by the Reserve Bank of Australia, which warned of a surge in demand and left the door open for another hike in March.
The move came despite recent deep cuts in interest rates in the United States and concerns of a possible recession there in 2008. "Having both the international and domestic information available, the board concluded that a tighter monetary policy stance was needed now," Glenn Stevens, the bank's governor, said in a statement.
Stevens said the world economy is likely to grow below trend in 2008 and that the credit squeeze in markets is likely to have a damping effect on demand. Still, the hike follows fourth quarter consumer price index data in January showing Australia's core inflation running at an annual pace of 3.6 percent, well above the bank's target of 2-3 percent. The bank expects inflation to continue rising in 2008 before cooling in 2009.
The increase also sets the Australian bank apart from most of the world's major central banks, many of which have had to cut rates in recent months to ease a global credit crunch. Australia's economy has continued to expand strongly on a sustained commodity price boom, a factor that has allowed the country to rely less on the U.S. economy while increasing links with booming economies such as China.
Analysts expect the bank to retain its tightening bias, but 15 of 16 economists polled by Dow Jones Newswires after Tuesday's decision forecast the bank would keep rates steady at its next meeting, scheduled for March 4. The meeting after that will be in May.
"For now we are saying they are done. The statement is not as punchy as we had thought" it would be, Stephen Walters, chief economist at JPMorgan, told Dow Jones Newswires. Adam Carr, senior economist at UBS, said the bank's focus on the global downturn was significant "because it suggests their inflation expectations will moderate in the second half of the year."
Australia's central bank raised interest rates Tuesday by 25 basis points to 7 percent, putting domestic inflation risks ahead of global worries and bringing the cash rate to its highest level since 1996.
Tuesday's increase was widely anticipated by market watchers. It was the eleventh since mid-2002 by the Reserve Bank of Australia, which warned of a surge in demand and left the door open for another hike in March.
The move came despite recent deep cuts in interest rates in the United States and concerns of a possible recession there in 2008. "Having both the international and domestic information available, the board concluded that a tighter monetary policy stance was needed now," Glenn Stevens, the bank's governor, said in a statement.
Stevens said the world economy is likely to grow below trend in 2008 and that the credit squeeze in markets is likely to have a damping effect on demand. Still, the hike follows fourth quarter consumer price index data in January showing Australia's core inflation running at an annual pace of 3.6 percent, well above the bank's target of 2-3 percent. The bank expects inflation to continue rising in 2008 before cooling in 2009.
The increase also sets the Australian bank apart from most of the world's major central banks, many of which have had to cut rates in recent months to ease a global credit crunch. Australia's economy has continued to expand strongly on a sustained commodity price boom, a factor that has allowed the country to rely less on the U.S. economy while increasing links with booming economies such as China.
Analysts expect the bank to retain its tightening bias, but 15 of 16 economists polled by Dow Jones Newswires after Tuesday's decision forecast the bank would keep rates steady at its next meeting, scheduled for March 4. The meeting after that will be in May.
"For now we are saying they are done. The statement is not as punchy as we had thought" it would be, Stephen Walters, chief economist at JPMorgan, told Dow Jones Newswires. Adam Carr, senior economist at UBS, said the bank's focus on the global downturn was significant "because it suggests their inflation expectations will moderate in the second half of the year."
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