Interest rates to climb higher as Australia battles inflation
Australian Treasurer Wayne Swan said Monday that the country "has a very
substantial inflation problem," but he said he doesn't know what
decision the central bank will make at its policy meeting Tuesday. Swan
reiterated that the Reserve Bank of Australia is independent, but his
comments on the strength of inflation are in part likely aimed at
softening up the Australian public for an interest rate rise tomorrow.
"The inflation genie is out of the bottle," he said, adding that
inflation is at a 16-year high. "We've got to deal with it." The
majority of economists expect the RBA to hike rates 25 basis points to
7%.
Economists after 50bp rate rise from Reserve bank of Australia.
Prominent market economists are starting to question the anti-inflation
credentials of the Reserve Bank of Australia (RBA), suggesting it may
need to "aggressively'' lift official interest rates by 50 basis points
to get prices growth under control. The ANZ bank's head of market
economics, Warren Hogan, yesterday called for the RBA to lift its 6.75
per cent cash rate by either 50 basis points next month or by two 25
basis points moves over the next two months. "The RBA is now clearly
behind the game on inflation,'' he said following Wednesday's numbers
showing annual underlying inflation increasing to 3.6 per cent, well
above the central bank's 2-3 per cent target zone. Mr Hogan said
inflationary pressure had built up in the economy and would remain for
18 months.
What does all this mean for you. Well put simply, Australia is the only
Western economy that continues to raise interest rates. The Bank Oo
England, the US Fed and ECB are all likely to cut interest rates this
year in an effort to mitigate a possible recession. This makes
Australian Dollar investments very attractive as you can bank on a
higher yield and further currency appreciation.
Expect AUD USD to barrle through 90 cents and GBP AUD to drop to back
into the 2.10 level or perhaps lower.
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