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Australian interest rates rise to their widest gap ever with NZReserve 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, 11:11AMby 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.
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Earthquake to rattle rates
The effect of the Christchurch earthquake has even rattled mortgage rates heralding a turning point to the current trend of a flattening yield curve with floating and short-term rates increasing and long-term fixed rates falling. Expect from here on to see the graph in front of you flipped, as economists expect the yield curve to steepen. The reason for this is that the 7.1 magnitude earthquake that hit Canterbury and the collapse of South Canterbury Finance last week has eliminated any remaining chance of a September Official Cash Rate (OCR) hike according to economists. Most are now not expecting monetary policy tightening until 2011. MORE » |
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