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Australia's Central Bank Will Not Change Interest Rates Yet
Australia's central Bank may keep its interest rate at the same level for a fourth month, which means that next on the agenda are increasing borrowing costs as the economy shows signs of improvement. Glenn Stevens, Reserve Bank Governor, will maintain the overnight cash rate target at 3 percent as of August 4, 2009. He believes the economy will recover faster than he forecast at the beginning of the year as record low interest rates boosted consumer and business confidence. He cut interest rates "by a record 4.25 percentage points between September 2008 and April 2009" and hopes policy makers will find "a suitable timely way of returning to normal when the right time for that comes."
Australia's central bank may leave interest rates unchanged for a fourth month and signal that its next move will be to increase borrowing costs as evidence mounts that the economy is rebounding from the global recession. Reserve Bank Governor Glenn Stevens will keep the overnight cash rate target at 3 percent at 2:30 p.m. in Sydney today, according to all 19 economists surveyed by Bloomberg News. Stevens said last week the economy may recover sooner than he forecast six months ago as the lowest interest rates in half a century and government spending boost consumer and business confidence. Stevens signaled he may not wait for unemployment to peak before raising rates, spurring speculation Australia will increase borrowing costs faster than most other nations. "The Reserve Bank is now starting to focus on how it will ultimately withdraw the massive monetary policy stimulus injected over the past nine months," said Matt Robinson, an economist at Moody's Economy.com in Sydney. Stevens, who slashed borrowing costs by a record 4.25 percentage points in six moves between September and April, said on July 28 that "hopefully" policy makers will find "a suitably timely way of returning to normal when the right time for that comes." Investors predict the benchmark rate will be 133 basis points higher in a year, a Credit Suisse Group AG index based on swaps trading showed at 1:01 p.m. in Sydney yesterday. By contrast, the Bank of England's key rate will be raised by 92.1 basis points and the U.S. Federal Reserve's rate by 81 basis points, according to separate indexes. A basis point is 0.01 percentage point. Economic Outlook It appears "that the downturn we are having may turn out not to be one of the more serious ones of the post War era, in contrast to the experiences of so many other countries," Stevens said on July 28. "We can much more easily imagine upside risks to the outlook, to balance out the downside ones, than was the case six months ago." Signs of a rebound in Australia's economy, which unexpectedly grew 0.4 percent in the first quarter after shrinking 0.6 percent in the previous three months, may prompt the central bank to revise its forecast for gross domestic product on Aug. 7. In May, the bank predicted GDP would contract 1 percent this year before expanding 2 percent in 2010. Retail sales increased in June for a fourth month, according to the median forecast of 19 economists surveyed by Bloomberg. The sales figures will be released at 11:30 a.m. in Sydney today. Cash Handouts The surge in spending is boosting earnings at companies including David Jones Ltd. The nation's second-largest department store chain said on June 30 that earnings after tax will rise by between 20 percent and 30 percent in the six months ending July 25. Prime Minister Kevin Rudd's government has distributed A$12 billion ($10 billion) in cash handouts to households this year and is spending A$22 billion to upgrade roads, railways, ports and schools. "It's becoming more common for Australians to see the glass as half full than as half empty," Stevens said last week. Consumer confidence jumped to the highest level in 19 months last month, according to a Westpac Banking Corp. survey. Stevens' latest comments contrast with his statement three weeks earlier, when he emphasized the bank had scope to cut borrowing costs if needed. "Given the Reserve Bank has been marketing a weak tightening bias over the past fortnight, presumably today will be about making that shift explicit in its official policy statement," said Rory Robertson, an economist at Macquarie Group Ltd. in Sydney. Stevens may say "something like; 'members agreed the recent improving signs at home and abroad have made the need for further easing seem less likely'," Robertson added.read source article