Australian interest rates rise to their widest gap ever with NZ
Reserve Bank of Australia Governor Glenn Stevens hiked Australia’s cash rate 25 basis points, taking the gap between New Zealand and Australian official interest rates to their widest gap ever.
Wednesday, April 7th 2010, 11:11AM
by BusinessWire
The move to put Australian monetary policy on more normal settings prompted the kiwi dollar to fall against its trans-Tasman counterpart.
Stevens lifted his benchmark interest rate to 4.25%, saying it is “appropriate for interest rates to be closer to average” as inflation and economic growth move back to more normal trends.
The kiwi dollar dropped to 76.25 Australian cents from 76.41 cents immediately before the announcement.
Today’s hike takes the interest rate differential between the trans-Tasman nations to its widest gap in Australia’s favour at 175 basis points.
With the Reserve Bank of New Zealand not pegged to begin hiking rates for at least another couple of months, this could get wider if the RBA goes again next month.
“With the risk of serious economic contraction in Australia having passed some time ago, the board has been lessening the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker,” Stevens said.
The RBA embarked on its tightening regime last year after Australia’s economy avoided falling into recession amid ongoing demand from China for its resources.
Markets have priced in 175 basis points of hikes by the RBNZ over the coming year, according to the Overnight Index Swap curve.
The RBNZ has indicated it may move on the Official Cash Rate as early as June. However, New Zealand Institute of Economic Research principal economist Shamubeel Eaqub said yesterday that a rate hike may be postponed till September, based on evidence of an unusually weak and shallow economic recovery.
The Reserve Bank has kept the OCR at 2.50% as expected, but had lowered its forecast track for the 90 day bill rate by around 60 basis points (0.6%) to a peak of 4.30% by the end of next year.
For borrowers that means floating home loans are not forecast to rise as much as previously forecast. In June the expectation was that the rates would rise 2% in the next 12 months: that figure has now been wound back to 1.4%.
Disclaimer: Every possible effort has been made to keep the information in the rates tables as accurate as possible, however, neither the publishers of Mortgage Rates nor anyone engaged to compile these tables accept any liability for inaccuracies or any loss suffered as a result. It is strongly advised that readers check loan details directly with the provider concerned.