The Australian Central Bank May Continue Raising Rates

Daily Forex Fundamentals | Written by ecPulse.com | Oct 20 09 07:32 GMT |

Throughout the minutes of their last meeting when they raised the interest rates by 25 basis points to 3.25, the Australian central bank confirmed that this decision was the best one taking into consideration the economic performance of the country, which started recovering from the crisis; therefore, it was necessary to keep a balance between inflation and growth. This could only be a confirmation that this was only the beginning and that the monetary policy will only get tighter from now on. After maintaining the rates at their lowest levels in 49 years for six consecutive months the bank members decided finally to start raising, considering that the need for eased policies diminished considerably, while the risks of delaying raising interest rates at the proper time may be great. Keeping interest rates at low levels would have led to a sharp expansion in credit operations, raised the liquidity in the financial markets and imbalanced prices which already started to show some upside pressures especially since rise that began in commodity prices, while the bank's target is to stabilize inflation between 2 and 3%. The current prices levels are higher than the bank's objectives, yet projections indicate the tendency to decline on the short term, while on the long term we may see more inflationary pressures especially in 2011 according to the central bank minutes. It was also pointed out that the economic indicators started to show that the Australian economy is more stable and improving, while the investment operations have started increasing which might be able to support economic growth significantly. The GDP during the first half grew by 1.0%, after the rise in consumer spending as a result to the government stimulus plan worth 20 billion Australian dollars directed to the household sector, in addition to the cut in interest rates by 4.25% from September last year to April. As a result, the household sector benefited the greatly and was able to overcome the rise in unemployment and the fall in income. Thereby confidence improved reaching this month its highest in two years, as well as spending on retail sales. All of this was crowned with the fall in unemployment to 5.7% during the month of September, confirming that the labor market in Australia began to overcome the crisis. The optimistic view presented by the Australian central bank today, confirms that on November the 2 we might witness another increase by 25 basis points at least in interest rates Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk