Fifth RBA rate hike
The Reserve Bank of Australia raised interest rates for a fifth time, to 4.25%. Judging by this formulation in the statement by RBA Governor Glenn Stevens, it seems likely that there will be more rate hikes in the near future:
"Interest rates to most borrowers nonetheless have been somewhat lower than average. The Board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process."
While Stevens is right to note that by historical Australian standards, interest rates aren't high. However, compared to other advanced economies, interest rates in Australia are relatively higher than normal. The interest rate spread is more than 4% compared to the U.S., Japan, Switzerland and Sweden, nearly 4% compared to the U.K., 3.25% compared to the euro area and 1.75% compared to New Zealand. The Australian dollar's status as a key target currency in carry trade is thus stronger than ever.
"Interest rates to most borrowers nonetheless have been somewhat lower than average. The Board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process."
While Stevens is right to note that by historical Australian standards, interest rates aren't high. However, compared to other advanced economies, interest rates in Australia are relatively higher than normal. The interest rate spread is more than 4% compared to the U.S., Japan, Switzerland and Sweden, nearly 4% compared to the U.K., 3.25% compared to the euro area and 1.75% compared to New Zealand. The Australian dollar's status as a key target currency in carry trade is thus stronger than ever.
posted by stefankarlsson at 10:18 AM
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