First of many – Australia raises rates

As the globe spins so does the decision time for central banks about their country’s interest rates. Firs off the post this week was Australia, followed by the UK then the Fed in the USA.

Strike one, the Australian Reserve Bank (RBA) increased rates by 25 basis points to 6.25 percent. Nobody was surprised by the rise, with a further rise being hinted at later on.

According to the Courier Mail

The rise in the cost of borrowing to banks, if passed on fully to customers, will add around AU$40 per month to the average mortgage repayment, and will be a further AU$2.9 billion burden to business.
Central bank governor Glenn Stevens said the RBA Board judged this to be an environment in which the risks of inflation exceeding 2-3 per cent over the medium term remained significant.

The annual rate of consumer price inflation was running at 3.9 per cent in the third quarter, above the central bank’s 2-3 per cent target."The board’s judgment yesterday was that a somewhat more restrictive stance of monetary policy was required in order to moderate inflation over time, and thereby to secure sustainable growth," Mr. Stevens said in a statement accompanying the rate rise. Commonwealth Securities chief economist Craig James said the only good news for home buyers was that the central bank said there were some signs that credit growth was slowing, and the two rate hikes earlier this year were slowing down the economy.  "If those factor continue that may mean that interest rates have indeed peaked and could come down into 2007," Mr. James said.

On Thursday it’s the turn of the UK, with a similar rise of 25 basis points expected, taking the total to 5 percent.

How the Fed reacts is still more open, with the effects of elections and uncertainty of current figures keeping people guessing.