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Dec. 1 (Bloomberg) -- Australia’s central bank raised its benchmark interest rate by a quarter percentage point for an unprecedented third straight month as evidence mounts that the nation’s economy is strengthening.
Reserve Bank Governor Glenn Stevens increased the overnight cash rate target to 3.75 percent from 3.5 percent in Sydney, as forecast by 19 of 20 economists surveyed by Bloomberg News. One forecast no change.
The economy has entered a “new upswing” that will last several years, boosted by rising consumer confidence and China’s demand for resources such as iron ore from BHP Billiton Ltd. House prices have climbed 10 percent this year, employment rose in October, and investment is forecast to surge in projects such as Chevron Corp.’s Gorgon liquefied natural gas field, recent reports show.
“I don’t think it’ll be lost on the board that 3.75 percent is still exceptionally stimulatory,” Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney, said ahead of today’s decision. “It’s a rate that will continue to provide significant ongoing support to an economy that will probably be firing on all cylinders in 2010.”
Stevens said today the bank’s three rate increases will “work to increase the sustainability of growth in economic activity and keep inflation consistent” with his target range of 2 percent to 3 percent “over the years ahead.”
First Time
The Australian dollar fell to 91.59 U.S. cents at 2:42 p.m. in Sydney from 91.71 cents just before the decision was announced. The two-year government bond yield dropped 4 basis points to 4.27 percent. A basis point is 0.01 percentage point.
“Growth in 2010 is likely to be close to trend and inflation close to target,” Stevens said.
The increase is the first time the central bank has raised borrowing costs at three straight meetings, boosting the rate from a half-century low of 3 percent. By contrast, officials in the U.S., U.K. and Europe have kept their benchmark lending rates at historic lows this year.
Speculation that Stevens would continue to lead the world in raising rates has stoked this year’s 32 percent surge in the nation’s currency, making it the best performer among the 16 major currencies against the U.S. dollar.
Investors bet there was a 76 percent chance that Stevens would increase the benchmark rate by a quarter-point today, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:51 a.m.
Dubai Turmoil
Today’s decision also suggests policy makers were unmoved by the turmoil last week on global stock and credit markets after Dubai World, one of the emirate’s three main state-related holding companies, said it’s seeking to delay payments on $59 billion of debt.
“It is now 18 years since Australia has experienced a negative in year-ended gross domestic product growth, a very prolonged expansion,” central bank Deputy Governor Ric Battellino said last week. “It is reasonable to assume that we will see this growth extended for a few more years yet.”
A report published earlier today showed China’s manufacturing growth held at the fastest pace in 18 months in November, aiding the rebound of the world’s third-biggest economy and Australia’s largest iron ore customer.
Australia’s economy expanded 1 percent in the first half of the year and is forecast by the Reserve Bank to grow 3.25 percent next year and in 2011. Third-quarter gross domestic product figures will be published on Dec. 16.
Mortgage Repayments
Still, this year’s interest-rate increases add about A$150 to monthly repayments on an average A$300,000 home loan, and may prompt consumers to trim spending that surged in the first half of the year after Prime Minister Kevin Rudd’s government distributed more than A$20 billion to households.
Consumers could “shut down” if borrowing costs are raised too quickly, said Ivan Hammerschlag, chairman of RCG Corp., which operates sporting shoe retailer The Athletes Foot, according to today’s Australian Financial Review. “Mortgage rates are still low, but I think the consumer forgets that.”
“There’s a real risk if monetary policy is normalized too quickly that parts of the economy will start to weaken,” Nomura Australia Ltd. senior economist Stephen Roberts, the one analysts to forecast no change today, said prior to the announcement.
“They don’t have too much economic growth and they don’t have a compelling inflation smoking gun,” he said. “They should move slowly.”
Inflation Slows
Inflation cooled to the slowest pace in 10 years, gaining in the third quarter by an annual 1.3 percent, after advancing 1.5 percent in the previous three months. Policy makers aim to keep inflation between 2 percent and 3 percent on average.
Building approvals unexpectedly dropped in October for the first time in five months, and manufacturing grew in November at a slower pace as companies reported fewer new orders and a faster decline in inventories, reports today showed.
Stevens is under pressure to raise borrowing costs as a rebound in demand for commodities such as iron ore, coal and gas prompts energy companies to increase spending.
Companies surveyed by the Bureau of Statistics in a report published on Nov. 25 forecast investment of A$105 billion in the year ending June 30, 2010, which is 5.9 percent more than they estimated three months earlier.
Rio Tinto Group and BHP Billiton boosted iron-ore production to a record in the third quarter to satisfy Chinese demand for steel, which helped exports surge 5 percent in September.
The nation’s single biggest investment project, the A$43 billion Gorgon natural-gas venture involving Chevron, Exxon Mobil Corp. and Royal Dutch Shell Plc, will create as many as 10,000 jobs when construction starts early next year, Chevron said on Sept. 14.
Reserve Bank Governor Glenn Stevens increased the overnight cash rate target to 3.75 percent from 3.5 percent in Sydney, as forecast by 19 of 20 economists surveyed by Bloomberg News. One forecast no change.
The economy has entered a “new upswing” that will last several years, boosted by rising consumer confidence and China’s demand for resources such as iron ore from BHP Billiton Ltd. House prices have climbed 10 percent this year, employment rose in October, and investment is forecast to surge in projects such as Chevron Corp.’s Gorgon liquefied natural gas field, recent reports show.
“I don’t think it’ll be lost on the board that 3.75 percent is still exceptionally stimulatory,” Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney, said ahead of today’s decision. “It’s a rate that will continue to provide significant ongoing support to an economy that will probably be firing on all cylinders in 2010.”
Stevens said today the bank’s three rate increases will “work to increase the sustainability of growth in economic activity and keep inflation consistent” with his target range of 2 percent to 3 percent “over the years ahead.”
First Time
The Australian dollar fell to 91.59 U.S. cents at 2:42 p.m. in Sydney from 91.71 cents just before the decision was announced. The two-year government bond yield dropped 4 basis points to 4.27 percent. A basis point is 0.01 percentage point.
“Growth in 2010 is likely to be close to trend and inflation close to target,” Stevens said.
The increase is the first time the central bank has raised borrowing costs at three straight meetings, boosting the rate from a half-century low of 3 percent. By contrast, officials in the U.S., U.K. and Europe have kept their benchmark lending rates at historic lows this year.
Speculation that Stevens would continue to lead the world in raising rates has stoked this year’s 32 percent surge in the nation’s currency, making it the best performer among the 16 major currencies against the U.S. dollar.
Investors bet there was a 76 percent chance that Stevens would increase the benchmark rate by a quarter-point today, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:51 a.m.
Dubai Turmoil
Today’s decision also suggests policy makers were unmoved by the turmoil last week on global stock and credit markets after Dubai World, one of the emirate’s three main state-related holding companies, said it’s seeking to delay payments on $59 billion of debt.
“It is now 18 years since Australia has experienced a negative in year-ended gross domestic product growth, a very prolonged expansion,” central bank Deputy Governor Ric Battellino said last week. “It is reasonable to assume that we will see this growth extended for a few more years yet.”
A report published earlier today showed China’s manufacturing growth held at the fastest pace in 18 months in November, aiding the rebound of the world’s third-biggest economy and Australia’s largest iron ore customer.
Australia’s economy expanded 1 percent in the first half of the year and is forecast by the Reserve Bank to grow 3.25 percent next year and in 2011. Third-quarter gross domestic product figures will be published on Dec. 16.
Mortgage Repayments
Still, this year’s interest-rate increases add about A$150 to monthly repayments on an average A$300,000 home loan, and may prompt consumers to trim spending that surged in the first half of the year after Prime Minister Kevin Rudd’s government distributed more than A$20 billion to households.
Consumers could “shut down” if borrowing costs are raised too quickly, said Ivan Hammerschlag, chairman of RCG Corp., which operates sporting shoe retailer The Athletes Foot, according to today’s Australian Financial Review. “Mortgage rates are still low, but I think the consumer forgets that.”
“There’s a real risk if monetary policy is normalized too quickly that parts of the economy will start to weaken,” Nomura Australia Ltd. senior economist Stephen Roberts, the one analysts to forecast no change today, said prior to the announcement.
“They don’t have too much economic growth and they don’t have a compelling inflation smoking gun,” he said. “They should move slowly.”
Inflation Slows
Inflation cooled to the slowest pace in 10 years, gaining in the third quarter by an annual 1.3 percent, after advancing 1.5 percent in the previous three months. Policy makers aim to keep inflation between 2 percent and 3 percent on average.
Building approvals unexpectedly dropped in October for the first time in five months, and manufacturing grew in November at a slower pace as companies reported fewer new orders and a faster decline in inventories, reports today showed.
Stevens is under pressure to raise borrowing costs as a rebound in demand for commodities such as iron ore, coal and gas prompts energy companies to increase spending.
Companies surveyed by the Bureau of Statistics in a report published on Nov. 25 forecast investment of A$105 billion in the year ending June 30, 2010, which is 5.9 percent more than they estimated three months earlier.
Rio Tinto Group and BHP Billiton boosted iron-ore production to a record in the third quarter to satisfy Chinese demand for steel, which helped exports surge 5 percent in September.
The nation’s single biggest investment project, the A$43 billion Gorgon natural-gas venture involving Chevron, Exxon Mobil Corp. and Royal Dutch Shell Plc, will create as many as 10,000 jobs when construction starts early next year, Chevron said on Sept. 14.
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