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Tue, Sep 21, 2010 - Page 10 News List

Australia mulling rate increase

MINING BOOM Resilient demand for Australia’s raw materials helped it dodge the recession during the global downturn, with above-average growth forecast next year


Australia’s central bank yesterday warned of a “fairly robust upswing” as the nation experienced the biggest minerals and energy boom in more than 100 years, flagging a return to rate hikes.

Reserve Bank of Australia Governor Glenn Stevens said the country had experienced several years of favorable growth and he forecast the trend to continue, with above-average growth expected into next year.

“We expect, and indications from businesses are that they do as well, that resource sector investment will rise further, as we experience the largest minerals and energy boom since the late 19th century,” Stevens said.

“If downside possibilities do not materialize, the task ahead is likely to be one of managing a fairly robust upswing,” he said.

“Part of that task will, clearly, fall to monetary policy,” he said.

Resilient Asian demand for Australia’s raw materials helped it become the only advanced economy to dodge recession during the global downturn, and Stevens said high export prices would bolster the economy “even as the stimulative effects of earlier low interest rates and budgetary measures continue to unwind.”

Inflation would not fall much further and the terms of trade would remain at record heights, he said, indicating that the central bank may not remain on the sidelines much longer.

The bank has held interest rates at 4.5 percent at its past four monthly meetings after Australia in October last year became the first country to tighten monetary policy following the downturn from a 50-year low of 3 percent.

Analysts said the central bank’s comments firmed the chances of a rate hike before the end of the year, with ANZ Bank economist Katie Dean saying next month was a “live” possibility given the jobless rate had fallen to 5.1 percent.

“The minutes from the September board meeting, due [today], will provide guidance on how close the recommencement of the RBA’s tightening cycle is,” Dean said.

“In our view, the national flow on from the terms of trade boom supports the case that interest rates will need to move to a contractionary setting, potentially upwards of 5.50 percent in 2011,” she said.

The Australian dollar rallied following the remarks, fetching US$0.9455 in late trade, up from Friday’s close of US$0.9439.

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