Interest Rates
November 7th, 2009 | Published in Economy
On Tuesday after its monthly meeting, Australia’s central bank, Reserve Bank of Australia, raised its key interest rate for the second month in a row, by 0.25 percent to 3.5 percent. RBA declaring the effects of global downturn over and warning that inflation was set to rise.
A month earlier, Australia became the first major economy to raise interest rates since the outbreak of the financial crisis when the bank hiked its key rate by a 0.25 percent from a 50-year low.
Australia has been a rarity among developed economies by avoiding recession during the worst global economic slump since World War II. It survived the downturn better than most thanks to A$42 billion (S$53 billion) of government stimulus spending and strong demand from China and other Asian nations for its iron ore and other mineral resources.
The decision was widely expected by analysts and underlines Australia’s quick recovery compared with other developed countries. Australia’s GDP will rise 1.75 percent this year and 3.25 percent in 2010, RBA said. Three months ago, it forecast gains of 0.5 percent and 2.25 percent respectively. While European Union’s economy is forecasted to expand 0.7 percent next year
The European Central Bank took its first step toward unwinding its extraordinary support measures for the euro zone economy on Thursday by signaling one-year loans to banks will not be repeated next year. The ECB kept its main interest rate on hold at 1 percent for the sixth month in a row.
The Federal Reserve signaled on Wednesday it was not close to raising interest rates, saying that the economy remained weak even though the recession appeared to be over.
In a move that could spell the continued success of investment banks’ fixed-income units, the Fed said it would keep its benchmark interest rate at virtually zero, and it made no change to its longstanding mantra that economic conditions were likely to warrant “exceptionally low” rates for “an extended period.”
For practical purposes, analysts said, policy makers are still at least six months away from tightening monetary policy.