Australia’s central bank yesterday lifted its main interest rate to 4.5 percent, citing inflation concerns, rising house prices and a booming commodities trade linked to Chinese demand.
Reserve Bank of Australia Governor Glenn Stevens said that the risk of serious economic contraction had passed some time ago, and the bank was now adjusting the interest rate toward more average levels.
“The board expects that, as a result of today’s decision, rates for most borrowers will be around average levels,” he said of the widely expected 25 basis point hike — the third in as many months and the sixth since October.
Despite recent debt fears out of Greece, Stevens said world markets were faring well and global growth forecasts had been recently revised upwards.
However, Australian commodity prices were rising faster than expected and looked likely to return to peak levels last seen at the height of the mining boom in 2008, boosting incomes and investment in the resources sector, he said.
“Under these conditions, output growth over the year ahead is likely to exceed that seen last year, even though the effects of earlier expansionary policy measures will be diminishing,” Stevens said.
There was also “considerable buoyancy” in the housing market, he said, with prices continuing to climb over recent months.
According to the Australian Bureau of Statistics, house prices across the country grew by an average 20 percent in the past 12 months.
While underlying inflation had declined owing to slowing private-sector labor costs during the global downturn, Stevens said it was likely to trend in the upper half of the bank’s target range of between 2 and 3 percent.
“The extent of decline from here may not be quite as much as earlier forecast and inflation now appears likely to be in the upper half of the target zone over the coming year,” Stevens said.
Data released last week showed inflation crept up to 2.9 percent year-on-year, with the consumer price index jumping 0.9 percent in the three months to March, led by vegetables, gasoline and electricity.
The central bank’s commodities prices index, released on Monday, showed a 17.6 percent jump last month, with contract and spot prices for iron ore fines increasing 100 percent in the month.
Commonwealth Bank chief economist Michael Blythe said the renewed commodity boom — mainly driven by surging demand caused by China’s voracious appetite for natural resources — underpinned inflationary pressures.
Australian Treasurer Wayne Swan said rate hikes were a “difficult but inevitable consequence” of an economy that was recovering faster than its advanced counterparts.
“Rates could never stay at record lows forever,” Swan said, warning he would hand down a “no frills” annual budget next Tuesday.
“The government has been winding back economic stimulus; what the Reserve Bank has been doing has been returning rates to normal,” he said.
TYPHOON: The storm’s path indicates a high possibility of Krathon making landfall in Pingtung County, depending on when the storm turns north, the CWA said Typhoon Krathon is strengthening and is more likely to make landfall in Taiwan, the Central Weather Administration (CWA) said in a forecast released yesterday afternoon. As of 2pm yesterday, the CWA’s updated sea warning for Krathon showed that the storm was about 430km southeast of Oluanpi (鵝鑾鼻), Taiwan’s southernmost point. It was moving in west-northwest at 9kph, with maximum sustained winds of 119kph and gusts of up to 155kph, CWA data showed. Krathon is expected to move further west before turning north tomorrow, CWA forecaster Wu Wan-hua (伍婉華) said. The CWA’s latest forecast and other countries’ projections of the storm’s path indicate a higher
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