insto - Australian financial markets

Economists are anticipating more interest rate rises from the Reserve Bank of Australia following last weeks 25 basis point rise – the sixth since October – took the official cash rate to 4.5 percent. The Big Four Banks were quick to pass the increase on to mortgage customers as the Government announced statistics indicating house prices had surged 20 percent in the March quarter, compared to the same period last year.

The IMF has urged the RBA to lift the official cash rate to 5 percent by the end of the year. The IMF also believes Australian inflation can stay within the official 2-3 percent target band this year. Access Economics director Chris Richardson has forecast the official cash rate will rise to 6 percent by the end of 2011. 

Minutes from the Reserve Bank of Australia’s April board meeting show the bank’s decision to raise official interest rates was strongly influenced by the rise in the national terms of trade. The RBA said the increase in the terms of trade for this year “was likely to be substantially stronger than forecast in the February Statement on Monetary Policy.” The board minutes said lending rates were still below average when it decided to lift rates earlier this month.

 Reserve Bank of Australia Governor Glenn Stevens has told a Sydney audience that the RBA had “never made a commitment not to make surprises” with monetary policy. Stevens said he believed that prior to the financial crisis, financial markets had been too comfortable about the RBA’s interest rate decisions. “I think one of the problems in the pre-crisis period was arguably a little bit too much comfort being taken by financial markets and borrowers generally that a central bank would never hurt them or surpr

 Reserve Bank of Australia Governor Glenn Stevens has suggested the central bank’s cash rate could rise by up to 1 percentage point in the months ahead to best manage the economy’s inflationary pressures.

At its meeting on Tuesday, the Reserve Bank of Australia’s board decided to leave the cash rate unchanged at 3.0 per cent.

The brief statement from the RBA’s governor Glenn Stevens pointed out that there were hopeful signs that the worst was over, with downside risks to the global economic outlook “diminished”, before concluding: “The Board’s judgment is that the present accommodative setting of monetary policy is appropriate given the economy’s circumstances. The Board will continue to monitor how economic and financial conditions unfold and how they impinge on prospects for sustainable growth in economic activity and achieving the inflation target.”

At its meeting today, the Reserve Bank of Australia’s board decided to leave the cash rate unchanged at 3.0 per cent. This almost universally expected result means the rate has remained unchanged for 5 consecutive months.

On Friday 14 August, the Reserve Bank of Australia’s Governor Glenn Stevens delivered what one commentator characterised as “his semi-annual download to the House of Reps Standing Committee on Economics”.

As Michael Blythe, the Commonwealth Bank of Australia’s chief economist noted, the RBA has had plenty of opportunity to make its views known over the past few weeks via speeches, post Board meeting announcements and last week’s quarterly Statement on Monetary Policy. The Governor’s comments followed the themes that emerged in its earlier reports:

• the global backdrop looks “distinctly better” than it did three months ago;
• domestic activity is “looking stronger” than it did three months ago;
• the current recession “may be one of the shallower recessions Australia has experienced”;
• at some point the Bank will have to start moving interest rates back to “normal” levels.

Over the weekend allegations were made in The Age newspaper that payments made to agents by Securency International Pty Ltd, a company in which the Reserve Bank is a shareholder, may have been used by those same agents to pay “kickbacks” to foreign government officials. The Age reports the commissions ran to millions of Australian dollars.