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Australia’s CB leaves cash rate at 4.25%

by on February 7, 2012

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(MENAFN) The Reserve Bank of Australia (RBA) said that following its board meeting in February, the bank decided to leave the cash rate at 4.25 percent, reported Xinhua News. The bank added that …

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Australia’s CB leaves cash rate at 4.25%

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Reserve Bank of Australia to crack down new measures to curb inflation pressures 

by on May 17, 2011

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Reserve Bank of Australia to crack down new measures to curb inflation pressures

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Reserve Bank of Australia Takes Hawkish Tone, Sends Aussie Higher

May 6, 2011

Reserve Bank of Australia Takes Hawkish Tone, Sends Aussie Higher

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Video: Maguire Says Fiscal `Slippage’ Led to RBI Rates Increase

May 3, 2011

May 3 (Bloomberg) — Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA, discusses the Reserve Bank of India’s decision to raise interest rates by half a percentage point, more than analysts forecast. He talks with Mark Barton on Bloomberg Television’s “Countdown.”

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Kiwi Falters on Reserve Bank of New Zealand Rate Decision

April 27, 2011

Kiwi Falters on Reserve Bank of New Zealand Rate Decision

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The Reserve Bank of New Zealand will delay increasing interest rates as inflation slows in the first quarter 

April 18, 2011

The Reserve Bank of New Zealand will delay increasing interest rates as inflation slows in the first quarter

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The Reserve Bank of Australia keeps interest rates steady at 4.75% for a fourth consecutive month

April 5, 2011

The Reserve Bank of Australia keeps interest rates steady at 4.75% for a fourth consecutive month

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Video: Broaddus Says Fed Remarks on Commodity Prices `Striking’

March 15, 2011

March 15 (Bloomberg) — Former Federal Reserve Bank of Richmond President Alfred Broaddus talks about today’s Federal Open Market Committee statement that the U.S. economic recovery is gaining strength and higher energy prices will have a temporary effect on inflation. Broaddus, speaking with Carol Massar and Matt Miller on Bloomberg Television’s “Street Smart,” also discusses the Fed’s asset purchase program and the outlook for monetary policy. (Source: Bloomberg)

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The Reserve Bank of Australia keeps interest rate steady in March, as inflation rates to be consistent

March 1, 2011

The Reserve Bank of Australia keeps interest rate steady in March, as inflation rates to be consistent

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The Reserve Bank of New Zealand keeps interest rate unchanged at 3.00% for a fourth consecutive month 

January 26, 2011

The Reserve Bank of New Zealand keeps interest rate unchanged at 3.00% for a fourth consecutive month

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Reserve Bank of India tightens on Iranian oil imports

December 25, 2010

Reserve Bank of India tightens on Iranian oil imports

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Reserve Bank of India increases the interest rate to 5.25% in November

November 3, 2010

Reserve Bank of India increases the interest rate to 5.25% in November

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Bill Gross: Fed Policy Is A ‘Brazen’ ‘Ponzi Scheme’

October 27, 2010

The Fed should stop meddling with the economy now, before it does more damage, say two top asset managers. The Fed Reserve Bank’s quantitative easing program, expected to begin next week, in which the central bank will go on a spending spree to inject more money into the economy, will deal untold damage to the system it attempts to support, say Pimco managing director Bill Gross and GMO chief investment strategist Jeremy Grantham. These purchasing strategies, in which the Fed will likely buy government bonds, intending to lower interest rates and stimulate demand, don’t work, Gross and Grantham say in letters to investors: They actually make things worse. “I ask you: Has there ever been a Ponzi scheme so brazen?” Gross says. “There has not.” Gross says that government debt has always operated in a Ponzi-like manner. The U.S., he says, can rely on future investments to pay for its current expenditures, in a theoretically unending chain. But in this case, Gross says, the government will be its own investor, feeding its own Ponzi machine. “Instead of simply paying for maturing debt with receipts from financial sector creditors … the Fed has joined the party itself. Rather than orchestrating the game from on high, it has jumped into the pond with the other swimmers,” Gross writes. “There is no need — as with Charles Ponzi — to find an increasing amount of future gullibles, they will just write the check themselves.” Gross, it should be noted, has a huge personal stake in the matter. His company, Pimco, invests in bonds — as Reuters notes, Pimco’s bond-focused Total Return Fund, which Gross runs, has about $252 billion in assets, making it the world’s largest bond fund . When Gross criticizes the Fed’s anticipated quantitative easing, he complains that it will likely boost inflation, which would deal a severe blow to bonds, ultimately reducing their value (and his fortune). “Bondholders, while immediate beneficiaries, will likely eventually be delivered on a platter to more fortunate celebrants,” he writes. Grantham, whose firm manages more than $94 billion in assets , also had some choice words for the Fed. The title of his report, “Night of the Living Fed,” not only conveys the danger he anticipates from quantitative easing (it’s “a play on the traditional scary Halloween season,” Reuters explains) but also suggests that the Fed’s program will artificially — and harmfully — jolt the tepid economy. “If I were a benevolent dictator, I would strip the Fed of its obligation to worry about the economy and ask it to limit its meddling to attempting to manage inflation,” he writes. “I would force it to swear off manipulating asset prices through artificially low rates and asymmetric promises of help in tough times. … It would be a better, simpler, and less dangerous world.” The Fed’s powers are limited to adjusting the currency — setting interest rates and determining how much money is in circulation. By taking that limited power to its furthest possible extreme, Gross and Grantham say, Fed chairman Ben Bernanke is making matters worse. Real stimulation, Grantham writes, will come from elsewhere. “If you really want to worry about growth, you should be concerned about sliding education standards and an aging population,” Grantham says in his letter. Gross, in his letter, makes an argument similar to Grantham’s, with a similar metaphor. He suggests that the economy might be stronger in the long run if the Fed were to allow it to grow naturally, “from admittedly lower levels.” “The Fed, on Wednesday, however, will decide that it is better to keep the patient on life support with an adrenaline injection and a following morphine drip than to risk its demise and ultimate rebirth in another form,” Gross writes. So outraged is Gross by the Fed’s anticipated policy that he gives it a nickname. “I call it a Sammy scheme, in honor of Uncle Sam and the politicians (as well as its citizens) who have brought us to this critical moment in time,” Gross says. “It is not a Bernanke scheme, because this is his only alternative and he shares no responsibility for its origin. It is a Sammy scheme — you and I, and the politicians that we elect every two years — deserve all the blame.

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Video: Oster Says RBA May Resume Rate Increases in November: Video

September 13, 2010

Sept. 14 (Bloomberg) — Alan Oster, chief economist at National Australia Bank Ltd., talks about the outlook for the Reserve Bank of Australia monetary policy and the nation’s economy. Australian business confidence jumped in August to the highest level in four months, suggesting the economy is avoiding fallout from weaker global growth and increasing the central bank’s scope to resume rate increases. Oster talks from Melbourne with Susan Li on Bloomberg Television. (Source: Bloomberg)

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Video: Pengana’s Kessler Discusses Australian Stocks Strategy: Video

September 5, 2010

Sept. 6 (Bloomberg) — Rhett Kessler, who helps manage about $1 billion at Pengana Capital Ltd. in Sydney, talks about his investment strategy for Australian stocks. Kessler also discusses the outlook for Reserve Bank of Australia monetary policy and the U.S. economy. He speaks with Susan Li on Bloomberg Television. (Source: Bloomberg)

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Some insights and plain speaking from Reserve Bank of India

August 30, 2010

Some insights and plain speaking from Reserve Bank of India

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Video: Weston Says Australia May Not Raise Rates by Year-End

August 17, 2010

Aug. 17 (Bloomberg) — Chris Weston, a Melbourne-based institutional dealer at IG Markets, talks about Australian central bank monetary policy and the outlook for the nation’s currency. Reserve Bank of Australia policy makers kept borrowing costs unchanged two weeks ago for a third month, judging the nation’s economic expansion won’t stoke inflation and amid doubts about the global recovery, according to minutes of their Aug. 3 meeting released in Sydney today. Weston talks with Mark Barton on Bloomberg Television’s “Global Connection.”

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Video: Pan Says India Interest Rate Increases Will Be Gradual: Video

July 26, 2010

July 27 (Bloomberg) — Indranil Pan, chief economist at Kotak Mahindra Bank Ltd., talks with Bloomberg’s Mark Barton about the outlook for Reserve Bank of India monetary policy. India needs tighter monetary policy to cool inflation, the central bank said, signaling the possibility of an interest-rate increase today. Pan, speaking from Mumbai, also discusses the government’s decision to allow state-run refiners to raise gasoline and diesel costs in a bid to cut its subsidies bill. (Source: Bloomberg)

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Video: Robertson Says Australia May Keep Rates Steady in 2010: Video

July 6, 2010

July 6 (Bloomberg) — Rory Robertson, economist and interest rate strategist at Macquarie Group Ltd., talks about the outlook for the Australian economy and central bank monetary policy. The Reserve Bank of Australia paused today in raising borrowing costs for a second month, and dropped a reference to the level of its benchmark being appropriate for the “near term.” Robertson speaks from Sydney with Linzie Janis on Bloomberg Television’s “Global Connections.” (Source: Bloomberg)

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New Zealand May Need `Steady Stream’ of Rate Increases Through Next Year

June 10, 2010

By Tracy Withers June 11 (Bloomberg) — New Zealand’s accelerating growth and a potential doubling in the inflation rate mean the central bank may need to follow up its first increase in borrowing costs since 2007 with at least another eight moves. Governor Alan Bollard yesterday raised the official cash rate a quarter-point to 2.75 percent and predicted inflation will jump to 5.3 percent in the year to June 2011 from 2 percent due to a sales-tax increase. The Reserve Bank will further boost the rate to at least 4.75 percent by December next year, according to a Bloomberg News survey of 12 economists. The central bank said record-low interest rates had delivered an “extraordinary stimulus” to the economy and it was now time to start gradually withdrawing it, adding that Europe’s debt crisis is having limited impact on trade and bank funding. New Zealand’s dollar gained as investors bet further interest-rate increases may buoy demand for the currency. “A steady stream of 25 point hikes should be expected provided that the medium-term outlook for the economy pans out broadly as the bank expected,” said Darren Gibbs , chief New Zealand economist at Deutsche Bank AG in Auckland. New Zealand’s dollar rose 1.6 percent yesterday after the rate rise was announced. It bought 67.75 U.S. cents at 4:30 p.m. in Wellington. There is a 70 percent probability that Bollard will raise the cash rate a quarter-point to 3 percent at his next review on July 29, according to a Credit Suisse index based on swaps trading. All 12 economists surveyed by Bloomberg News yesterday expect a rise next month. Bank Bills The central bank yesterday forecast the three-month bank- bill yield, which economists use as a guide to the cash rate, will rise to 5.6 percent by early 2012 from 2.7 percent in the first quarter this year. “We put out a 90-day interest rate track that is roughly consistent with doing 25 basis point increases for this year,” Bollard said in an interview with Bloomberg Television yesterday. “But we’re very cautious about that. We want to judge the effects on the New Zealand economy and we’re going to be very sensitive to any financial volatility going on.” The central bank yesterday said annual growth will almost double in the year ending March 31, 2011, to 3.8 percent. Inflation will peak at 5.3 percent in the year to June 2011 buoyed by an increase in sales tax, tobacco excises and the effect of a carbon emissions charge on fuel and power. A year later inflation will be 2.8 percent, near the top of the 1 percent to 3 percent band that Bollard targets. ‘Extraordinary Stimulus’ Before yesterday’s move, Bollard had held the cash rate at 2.5 percent since April last year to help the economy recover from its worst recession in three decades. “We are starting to remove extraordinary stimulus,” Bollard told parliament’s finance & expenditure select committee in Wellington yesterday. “We expect to be able to go through this removal of stimulus this time with fewer increases in the cash rate than in the last cycle.” Higher interest rates may spur demand for so-called carry trades, in which investors borrow in low-interest-rate currencies to buy better-yielding assets in New Zealand, buoying the local currency. New Zealand’s dollar has gained 7 percent against the U.S. dollar in the past 12 months because its cash rate remains attractive compared with the Federal Reserve target of zero to 0.25 percent and the 0.5 percent base rate in the U.K. “The carry trade is there although one could make the case it is less attractive at the moment than Australia where interest rates are a full 2 percentage points higher than ours,” Prime Minister John Key , the former head of foreign exchange at Merrill Lynch & Co., said in an interview June 1. Stronger Currency Bollard yesterday said there is a risk higher interest rates will push up the currency, curbing exports, which make up 30 percent of the economy. Last month he said a gradual depreciation in the New Zealand dollar “remains desirable.” Fonterra Cooperative Group Ltd. in Auckland, the world’s largest dairy exporter, forecast May 25 that it would pay its 10,500 farmers 8.2 percent more for milk in 2011, spurred by “strong” demand from China, the rest of Asia, the Middle East and North Africa. The group accounts for about 40 percent of the global trade in butter, milk powder and cheese. The Reserve Bank expects it won’t need to raise the cash rate as high as in previous cycles because bank funding costs are higher, long-term interest rates are higher than short-term interest rates, and a greater proportion of borrowers use floating rate mortgages, Bollard said in a statement yesterday. ‘New Neutral’ Bollard raised the cash rate to 8.25 percent in 2007, the highest since the central bank began using the measure in 1999, to curb a housing boom. Yesterday, Bollard said he doesn’t yet have a view on how high interest rates will go, saying that will depend on the behavior of consumers and companies. “We see ourselves as easing our foot off the accelerator but for the next little while we’ll still be in very stimulative monetary conditions,” he told reporters. “We don’t have a specific view on what the new neutral rate might be. We’re hopeful we won’t have to go into ‘heavy foot on the brake’.” The neutral rate may be no higher than 6 percent and that won’t be reached until 2013, said Craig Ebert , senior markets economist at Bank of New Zealand Ltd. in Wellington. Bollard is “probably more nervous about having a bit too much slack in the cash rate, rather than particularly seeing a rate it needs to get to,” Ebert said. “They don’t have a dead set target in mind as to where they want to end up but they do have an imperative of taking some slack away in the near term.” To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net .

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New Zealand’s Bollard May Increase Rates for the First Time in Three Years

June 8, 2010

By Tracy Withers and Daniel Petrie June 9 (Bloomberg) — New Zealand’s central bank will probably raise its benchmark interest rate tomorrow for the first time in three years, judging that inflation poses a bigger risk to the economy than any fallout from Europe’s debt crisis. Governor Alan Bollard will increase the official cash rate to 2.75 percent from a record-low 2.5 percent, according to 13 of 15 economists in a Bloomberg News survey . Two expect no change. The decision is due to be announced at 9:00 a.m. in Wellington tomorrow. An increase would be at odds with the actions of other Asia-Pacific policy makers from Indonesia to Thailand to the Philippines, who have kept interest rates unchanged this month on concern that European fiscal woes may threaten the global recovery. Inflation in New Zealand is set to accelerate as growth picks up and the government introduces new taxes. “The inflation and activity outlooks suggest the Reserve Bank should go ahead with rate hikes,” said Nick Tuffley , chief economist at ASB Bank Ltd. in Auckland. “Concerns that the European debt crisis will make accessing offshore funds difficult and lower demand for exports have introduced some uncertainty into the decision.” There was a 72 percent chance of a quarter-point rate increase at 6 p.m. in Wellington yesterday, from 80 percent on June 4, according to a Credit Suisse index based on swaps trading. ‘Coming Months’ Bollard has kept borrowing costs unchanged since April last year to aid a recovery from the nation’s worst recession in three decades. He said April 29 rates were likely to be raised “over the coming months” provided the domestic economy continued to grow in line with his projections. Higher rates may buoy demand for so-called carry trades, in which investors borrow in low-interest-rate currencies to buy higher-yielding assets such as in New Zealand. That may be the last thing Bollard and Prime Minister John Key want as they try to buoy exports, which make up 30 percent of the economy. “A gradual depreciation of the New Zealand dollar remains desirable for a sustainable rebalancing of the New Zealand economy,” Bollard said in the central bank’s Financial Stability Report on May 19. New Zealand’s dollar, which is the third-best performing major currency against the U.S. dollar in the past year, will rise to 71 U.S. cents by Dec. 31 from 66.39 U.S. cents as at 6 p.m. in Wellington yesterday, based on the median estimate of 33 strategists surveyed by Bloomberg. Carry Trade “The carry trade is there although one could make the case it is less attractive at the moment than Australia where interest rates are a full 2 percentage points higher than ours,” Key said in an interview on June 1. Clouding the outlook for a rate increase is Europe’s sovereign debt crisis, which prompted central banks in Indonesia, the Philippines and Thailand to keep borrowing costs unchanged last week. Australia’s central bank on June 1 also kept its overnight cash rate target unchanged, pausing after six increases since early October. The Bank of England will keep its rate at 0.5 percent tomorrow, according to all 60 economists surveyed by Bloomberg. European finance ministers on June 7 agreed to moves to prevent a repeat of the Greece-fueled sovereign debt crisis, building on last month’s commitment to a 750 billion-euro ($897 million) aid package. Inflation Threat Bollard, who is required to keep average inflation between 1 percent and 3 percent, faces a more immediate inflation threat. On May 20, Finance Minister Bill English announced the nation’s sales tax rate would rise to 15 percent from 12.5 percent effective Oct. 1, boosting all prices by slightly more than 2 percent. The government had previously increased taxes on tobacco, while a plan to levy carbon emissions will boost fuel and power costs from July 1. Inflation is expected to accelerate to 5.9 percent in the year ending March 31, the Treasury said in forecasts published with the budget. The central bank releases its own updated economic projections tomorrow. “Domestic news has on balance been stronger than Reserve Bank expectations,” said Doug Steel , markets economist at Bank of New Zealand Ltd. in Wellington. Fanning prices, the jobless rate fell to 6 percent in the first quarter from 7.1 percent the previous three months, and consumer sentiment rose for a third month in May, ANZ National and Roy Morgan Research said on May 21. “We see recovery, but it’s likely to take time,” Warehouse Group Ltd ., the nation’s largest discount retailer, said in a presentation to investors last week. Consumer sentiment may hinge on more jobs in the economy, which will buoy incomes and offset a likely increase in interest rates later this year, the Auckland-based company said. To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net .

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New Zealand’s Key Says Aussie to Beat Kiwi Carry Trade on Rate Difference

June 1, 2010

By Tracy Withers June 2 (Bloomberg) — New Zealand Prime Minister John Key , the former head of foreign exchange at Merrill Lynch & Co., said the nation’s currency may fail to keep pace with gains in the higher-yielding Australian dollar. The kiwi strengthened 29 percent in the year through April before tumbling 7 percent in the past month as Europe’s debt crisis spurred a rally in the U.S. dollar. The South Pacific currencies have been buoyed by higher commodity prices and demand for so-called carry trades, in which investors borrow in low-interest-rate currencies to buy higher-yielding assets. “The carry trade is there although one could make the case it is less attractive at the moment than Australia where interest rates are a full 2 percentage points higher than ours,” Key, 48, said in an interview in Wellington yesterday. Reserve Bank of New Zealand Governor Alan Bollard , who has kept the official cash rate at a record-low 2.5 percent for more than a year, said on April 29 he plans to raise borrowing costs in coming months. The Reserve Bank of Australia kept its cash target at 4.5 percent yesterday and said its setting was “appropriate for the near term.” “The carry trade should be more in Australia’s favor,” said Annette Beacher , senior strategist at TD Securities Inc. in Singapore. “By any stretch of the imagination the Aussie dollar should be stronger than the kiwi.” June Review The kiwi has gained more than 2 percent against the Australian dollar since the start of May. The currency traded at 67.61 U.S. cents as of 8:05 a.m. in Wellington, while the Australian dollar was at 83.29 cents. There’s a 78 percent chance Bollard will raise borrowing costs by a quarter percentage point at his next review on June 10, according to a Credit Suisse AG index based on swaps trading. “The Reserve Bank governor has been reasonably transparent, that rates wouldn’t go up until the middle of the year and I’ve got no reason to think he’s changing from that,” Key said. Bollard makes his decisions independently of the government. New Zealand’s benchmark rate compares with 0.1 percent in Japan and as low as zero in the U.S. “Interest rates drive exchange rates but it’s not a perfect science,” said Key. Bollard kept the cash rate at a record-high 8.25 percent from July 2007 to June 2008 and the currency hit a 23-year high of 81.84 cents in March 2008. Key’s government is betting that a lower currency will buoy exports , which make up 30 percent of the economy, and deliver more sustainable growth. On May 20, the government forecast in its budget that the economy will grow 3.2 percent in the year ending March 31, 2011, and 3.1 percent a year later. Europe Crisis “I don’t think the budget itself per se will put pressure on rates,” said Key. The aim for policy makers is to ease pricing “bottlenecks” in the economy to foster a “lower inflation and a lower interest-rate environment,” Key said. New Zealand’s dollar has weakened 3.3 percent against the U.S. dollar the past three months as investors reduce higher- yielding investments because of the European debt crisis. New Zealand posted its first trade surplus in more than seven years in the year ended April, buoyed by rising prices and the currency’s decline. “We’re only starting to see exports broaden out from this quite narrow dairy and forestry focus into a bigger recovery,” Shamubeel Eaqub , principal economist at the New Zealand Institute of Economic Research Inc., said at a briefing in Wellington yesterday. “We want to really nurture that, with a competitive exchange rate. We don’t want to slam it.” Fonterra Cooperative Group Ltd ., the world’s largest dairy exporter, forecast May 25 that it would pay its 10,500 farmers 8.2 percent more for milk in 2011, spurred by “strong” demand from China, the rest of Asia, the Middle East and North Africa. The Auckland-based group accounts for about 40 percent of the global trade in butter, milk powder and cheese. To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

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Subbarao Risks `Falling Behind’ on Rates After India’s Growth Accelerates

May 31, 2010

By Unni Krishnan and Kartik Goyal June 1 (Bloomberg) — India’s central bank needs to be less wary of the fallout of Europe’s debt crisis and raise interest rates to curb inflation stoked by growth, economists said. Asia’s biggest economy after Japan and China expanded 8.6 percent last quarter from 6.5 percent in the previous three months, India’s statistics office said in New Delhi yesterday. The acceleration in growth came even as consumer spending slowed, a drag that may lift in coming months, according to HSBC Group Plc economist Frederic Neumann. The Reserve Bank of India said last month it will be “cautious” in tightening the monetary policy even as the country’s consumer-price inflation rate is the highest among Group of 20 nations. India’s stance, in the face of risks to growth posed by Europe’s sovereign-debt crisis, may be echoed across the Asia Pacific this week as central banks from Australia to the Philippines set interest rates. “If India’s central bank pays too much attention to Europe and waits for clarity, then it risks falling behind the curve,” said Ramya Suryanarayanan, an economist at DBS Bank Ltd. in Singapore. “It is important that interest rates are normalized.” She expects a quarter-percentage point increase in rates by the end of June. The Mumbai-based Reserve Bank has raised interest rates twice since mid-March by a quarter-percentage point each time. Consumer Prices The bank’s benchmark reverse-repurchase rate is 3.75 percent while the consumer-price inflation rate for industrial workers touched about 13 percent in April. Prices paid by farm workers are close to 15 percent, hurting the purchasing power of the 650 million people who live in India’s countryside. In contrast, consumer prices are running at 2.9 percent in Australia, 3.9 percent in Indonesia and 4.4 percent in the Philippines. The Reserve Bank of Australia may leave the overnight cash rate target at 4.5 percent today, according to a Bloomberg News survey. Bank Indonesia will probably maintain its benchmark rate on June 4 and borrowing costs in Philippines may be kept unchanged on June 3, separate surveys showed. “The euro jitters may have left policy makers across the world in a more accommodative mood, but in India tightening is now needed to avoid a hard landing later on,” HSBC’s Neumann said. “They should add some urgency to the tightening cycle.” Benchmark 10-year Indian government bond yields rose 17 basis points last week, the biggest increase in more than a month, as traders increased bets Governor Duvvuri Subbarao will boost rates. The yield closed at 7.56 percent yesterday. The rupee lost 4.3 percent against the U.S. dollar last month and the Sensitive Index declined 3.5 percent in the period. Consumption As growth accelerated last quarter, consumption by individuals and companies increased 2.6 percent, the weakest pace in eight years, data from the statistics office showed. “This, presumably, reflects in part soaring food prices, which eroded real disposable incomes and made shoppers generally more cautious,” the Hong Kong-based Neumann said. “With agriculture prices now easing, we expect consumption to get a real kick over the coming quarter, helped, too, by rising incomes as a tightening labor market spurs wage growth.” Rains in this year’s June-September monsoon season will be “normal,” the weather office forecast in April, boosting prospects for agriculture and rural incomes. Salaries are increasing in urban areas as well with companies including Tata Consultancy Services Ltd., India’s biggest exporter of software services, boosting employees’ pay. Tata Consultancy said in April it plans to spend about $200 million on wage increases this year. The central bank acknowledges that consumer demand is strengthening, making inflation a “visible” concern, Subir Gokarn , who is in charge of monetary policy at the Reserve Bank, said in an interview in Warsaw on May 26. Still, he said the “pace and magnitude” of monetary policy actions will be conditioned by global developments. To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net .

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Australia May Leave Key Rate at 4.5% as Steepest Increases in G-20 `Bite’

May 30, 2010

By Jacob Greber and Daniel Petrie May 31 (Bloomberg) — Australia’s central bank may keep its benchmark interest rate unchanged this week after the most aggressive round of increases in the Group of 20 restrained retail sales and slashed mortgage lending by a quarter. The central bank will leave the overnight cash rate target at 4.5 percent at 2:30 p.m. in Sydney tomorrow, according to all 22 economists surveyed by Bloomberg News. A separate report this week may show economic growth slowed to 0.6 percent last quarter from 0.9 percent in the previous three months, analysts predict. The Reserve Bank of Australia’s decision may be echoed across Asia this week as central banks from Indonesia to Thailand and the Philippines are forecast to hold off on rate increases as they gauge fallout on the global economy from Europe’s debt crisis. Investors boosted bets this month that Governor Glenn Stevens will keep Australia’s policy rate unchanged until 2011. “Uncertainty has increased regarding the global economic outlook,” said Shane Oliver , senior economist in Sydney at AMP Capital Investors, which manages $90 billion in assets. “The rate hikes to date are starting to bite.” Stevens increased rates six times since early October from a half-century low of 3 percent, citing surging Asian demand for Australian commodities and a jobs boom that has pushed down unemployment to around half that of the U.S. and Europe. European Rescue The interest-rate moves helped stoke a 27 percent gain in Australia’s dollar in the 12 months through April 30, making it the second-best performer among the world’s 16 most-traded currencies. The currency has since pared around half of those gains as European Union policy makers scrambled this month to prevent a potential Greek debt default. Thailand’s central bank will probably maintain its benchmark rate at 1.25 percent on June 2 and Bank Indonesia may keep borrowing costs at 6.5 percent on June 4, according to separate Bloomberg surveys. The key rate in the Philippines is forecast to be held at 4 percent on June 3. Australia’s economy, which skirted last year’s global recession and surged in the final three months of 2009, shows signs of slowing as higher borrowing costs and the end of government stimulus weigh on domestic demand. First-quarter GDP figures will be published at 11:30 a.m. in Sydney on June 2. “It’s now clear that the Reserve Bank should have left rates on hold in May and arguably in April,” said Craig James , a senior economist at Commonwealth Bank of Australia in Sydney. “And it’s not just the volatility on global markets. The one common element across businesses is the reluctance to spend.” ‘Rapid Deterioration’ Virgin Blue Holdings Ltd., Australia’s No. 2 carrier, cut its profit forecast last week on a “rapid deterioration” in leisure travel and rising industrywide capacity. Reports to be released ahead of tomorrow’s rate decision will show retail sales increased 0.3 percent in April, matching the weakest growth rate in a year, and building approvals fell for the third month in four, analysts forecast. Those figures will be published at 11:30 a.m. in Sydney. The nation’s property market, which surged 20 percent in the year to March 31, is also showing signs of weakening. Home- loan approvals dropped 25 percent in the six months through March to the lowest level in nine years. “The slowdown in the housing market over the past month is a real concern,” said David Airey, president of the Real Estate Institute of Australia. “Since early April, we’ve seen the market change from buoyant to slow and depressed.” Consumer Behavior Australia’s monetary policy is now “well placed” and interest-rate increases so far are “beginning to affect behavior” of consumers, central bank officials said in the minutes of their last meeting on May 4. Investor bets that Stevens will resume boosting rates in coming months because of faster inflation have all but evaporated this month. Traders are betting there is no chance of a quarter-point rate increase at central bank monthly meetings until December, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. There is also a 14 percent chance of a rate cut tomorrow, the futures showed at 11:42 a.m. on May 28. Keeping rates on hold in coming months may assist Prime Minister Kevin Rudd ’s campaign to win an election that is likely to be called this year. “With rates now broadly neutral and risk aversion so elevated, we see little reason for tightening” soon, said Tim Toohey , chief economist at Goldman Sachs JBWere Ltd. in Melbourne. Still, the “risk of meaningful financial spillovers from European sovereign concerns to the domestic economy is limited,” he said, adding that the bank may resume tightening monetary policy as early as August. To contact the reporters for this story: Jacob Greber in Sydney at jgreber@bloomberg.net ; Daniel Petrie in Sydney at dpetrie5@bloomberg.net

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India Growth May Top 8% as Interest Rates Stay `Out of Line’ With Recovery

May 27, 2010

By Kartik Goyal May 28 (Bloomberg) — India’s economy probably grew at the quickest pace in more than two years, increasing pressure on the central bank to raise interest rates even as Europe’s sovereign- debt crunch threatens to undermine the global recovery. Gross domestic product rose 8.6 percent in the three months ended March 31 from a year earlier, the most since the December quarter of 2007, according to the median of 19 forecasts in a Bloomberg News survey. The Central Statistical Organisation is due to announce the data on May 31 at 11 a.m. in New Delhi. India and China, the world’s fastest-growing major economies, face the threat of the debt crisis cutting demand in the European Union, the market accounting for a fifth of their exports. India’s central bank said last week that it will raise rates only cautiously even though they are “out of line” with inflation, running close to 10 percent. “The Reserve Bank of India is likely to follow a measured approach as global factors contaminate the issues relating to monetary policy,” said Sailesh K. Jha , Singapore-based managing director for fixed-income strategy and sales at Jefferies & Co., a New York-based brokerage. “Inflation may further broaden.” India’s benchmark Sensitive Index has declined about 5 percent since April 30 on concern the debt crisis may weaken the global economy. The yield on the 10-year government bond fell 54 basis points to 7.52 percent during the period as the central bank signaled a slower pace of rate-increases. Rupee Declines The rupee dropped 6.2 percent against the U.S. dollar this month, making imports costlier and impeding central bank Governor Duvvuri Subbarao’s efforts to cool inflation. The Reserve Bank’s benchmark reverse repurchase rate is at 3.75 percent after two quarter percentage point increases since mid-March, while the wholesale-price inflation touched 9.59 percent in April. Growth in India’s $1.2 trillion economy, Asia’s largest after Japan and China, is accelerating as rising incomes boost demand for cars, mobile phones and air travel. Salaries in India may increase at the fastest pace in the Asia Pacific in 2010, according to Hewitt Associates Inc., the Lincolnshire, Illinois- based human resources adviser. The economy grew 6 percent in the quarter ended Dec. 31. Car sales by companies including Maruti Suzuki India Ltd. and Tata Motors Ltd. rose 39.5 percent in April from a year earlier, the biggest jump for the month since 1999, according to the Society of Indian Automobile Manufacturers. 3G Auction The government’s auction of high-speed wireless licenses this month highlights corporate enthusiasm for the nation’s prospects. Companies including Newbury, England-based Vodafone Group Plc, the world’s biggest mobile-phone operator by sales, took part and the sale raised 677.2 billion rupees ($14.3 billion), almost double the amount budgeted by Finance Minister Pranab Mukherjee . Services including air travel, which account for about 55 percent of India’s economy, expanded the most in 21 months in April, according to the Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics. In comparison, China’s $4.3 trillion economy grew 11.9 percent in the first quarter. The Organization for Economic Cooperation and Development said May 26 that China and India need “a much stronger tightening of monetary policy” to counter inflation and reduce the risk of asset bubbles. Economic Changes Some economists say Indian Prime Minister Manmohan Singh’s government has made slow progress in creating new capacity in infrastructure such as power, roads and ports, which is adding to inflation pressures and limiting economic expansion. “Unless infrastructure is addressed in a serious way in India, it will remain a drag on growth and inflation,” said N.R. Bhanumurthy , an economist at the New Delhi-based National Institute of Public Finance and Policy. Singh wants to boost growth to 10 percent pace, which he says is needed to pull the 828 million people living on less than $2 a day out of poverty. India, ranked below war-ravaged Ivory Coast and Sri Lanka for the quality of infrastructure, in March lowered its target for spending on roads and ports, after failing to complete planned projects. Projected investment in electricity, roads and wharves may reach 407 billion rupees in the five years to March 2012, half the original goal, according to the Planning Commission, a government office that sets investment targets. Bhanumurthy said companies’ costs rise as they invest in their own power generators to meet a shortage in supplies. The finance ministry estimates that India produces about 10 percent less electricity than it needs, and roads, which account for 65 percent of the nation’s cargo, are plagued by single lanes and irregular surfaces. “The key thing required in India, is a significant pick-up in infrastructure investments,” said Vetri Subramaniam , head of equity funds at Mumbai-based Religare Asset Management Co., which manages about $3 billion in assets. To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

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India’s Central Bank Signals `Cautious’ Policy Amid Europe’s Debt Crisis

May 19, 2010

By Anoop Agrawal and Kartik Goyal May 20 (Bloomberg) — India’s central bank signaled it may raise interest rates in a measured manner as Europe’s debt crisis outweighs inflation concerns. Global economic conditions have changed in the past six weeks and a “cautious pace is the best way to go and that is the stance,” Subir Gokarn , the deputy governor in charge of monetary policy at the Reserve Bank of India, told reporters in Thiruvananthapuram, India, yesterday. “I am aware rates are quite out of line with inflation and the growth scenario.” India and China, the world’s fastest-growing major economies, are struggling to control inflation amid risks to growth emanating from debt woes of Greece, Portugal and Spain. Gokarn’s comments indicate the central bank may slow the pace of interest-rate increases even though Governor Duvvuri Subbarao described rising prices as a “big worry.” “Interest rates will go up, but in a gradual way,” said Dharmakirti Joshi , chief economist at Crisil Ltd., the Indian unit of Standard & Poor’s. Subbarao may raise borrowing costs by a quarter percentage point in the next monetary policy announcement on July 27, Joshi said, adding a move before that is unlikely. The Reserve Bank on April 20 raised its benchmark interest rates by a quarter point for the second time in a month, increasing the reverse repurchase rate to 3.75 percent and the repurchase rate to 5.25 percent. Protect Economy The government will protect the Indian economy from the crisis in Europe, Finance Minister Pranab Mukherjee said in an interview with the NDTV Profit television channel yesterday. India’s central bank unveiled its stance after the European Union and International Monetary Fund cobbled together a 110 billion-euro ($136.4 billion) rescue package for Greece on May 2 to prevent contagion. European leaders followed it up with an unprecedented emergency fund of as much as 750 billion euros to back countries facing instability and a program of bond purchases by the European Central Bank. Europe’s problems coincide with rising prices in India, with the benchmark wholesale-price inflation rate climbing 9.59 percent in April as demand for cars and houses increase. India’s industrial production grew 13.5 percent in March, rising more than 10 percent for a sixth straight month. In China, where industrial production rose 17.8 percent in April, consumer prices climbed at the fastest pace in 18 months, adding pressure on policy makers to raise interest rates and allow yuan gains. China has raised banks’ reserve requirements three times this year. Factory Output Factory output is gaining strength in India as wages rise. Salaries in India may grow at the fastest pace in the Asia Pacific this year, according to Hewitt Associates Inc., the Lincolnshire, Illinois-based human resources adviser. Cement production by companies including ACC Ltd. , India’s biggest cement maker, gained 10.1 percent in March, the government said on April 27. Concerns about Europe caused the Sensitive Index to fall the most in about four months yesterday, declining 2.8 percent on the Bombay Stock Exchange. The rupee weakened the most in 15 months, closing at 46.3550 per dollar in Mumbai, while the yield on the 10-year government bond fell five basis points to 7.44 percent, the lowest in more than five months. Subbarao and Gokarn are in Thiruvananthapuram for a meeting of the central bank’s board of directors today. The board includes Azim Premji , chairman of Wipro Ltd., India’s third- largest software provider, and Kumar Mangalam Birla , chairman of Hindalco Industries Ltd., the nation’s largest aluminum producer. To contact the reporter on this story: Anoop Agrawal in Thiruvananthapuram at Aagrawal8@bloomberg.net . Kartik Goyal in New Delhi at kgoyal@bloomberg.net

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RBA Says European Turmoil May Trigger `Sharp’ Slowdown in Global Economy

May 6, 2010

By Jacob Greber May 7 (Bloomberg) — Australia’s strengthening economy, forecast to accelerate above its average growth rate next year and in 2012, could be buffeted by global fallout from Europe’s debt turmoil, the central bank said. “The fiscal problems in Europe could intensify, prompting a retreat from risk-taking by investors and a sharp slowing in the world economy,” the Reserve Bank of Australia said in Sydney today. “If this were to occur abruptly it could prompt another period of global economic weakness and falls in commodity prices.” Global stock markets, the euro and bond prices have tumbled this week as investors seek safer assets amid concern Greece’s sovereign credit crisis will spread to other European countries and undermine their economic recoveries. While Australia’s central bank boosted forecasts for domestic growth and inflation today, it also said investors are currently focused on “downside” risks. If that uncertainty deepens, “Australia’s good fundamentals would help, but the experience of late 2008 suggests that the willingness to invest abroad declines in such circumstances,” the bank said in its quarterly Statement on Monetary Policy. Still, Australia’s economy shows signs of accelerating, as companies such as BHP Billiton Ltd. and Chevron Corp. stoke a record mining investment boom to meet Chinese demand for iron ore, coal and energy. Above Average Gross domestic product growth will accelerate from 3.25 percent this year to 3.75 percent in 2011 and 4 percent in 2012, a pace that is higher than the economy’s “longer-run average rate,” today’s statement said. Three months ago, the central bank predicted GDP would increase 3.5 percent in 2011. Its forecast for this year was unchanged. Reserve Bank of Australia Governor Glenn Stevens this week increased his benchmark overnight cash rate target by a quarter percentage point to 4.5 percent, the sixth increase in seven months, saying borrowing costs are now back at their “average” levels. The comment prompted investors to increase bets that policy makers will keep borrowing costs unchanged in coming months. Stevens said last month that his adjustments, which are the biggest increases in interest rates by any Group of 20 central bank, are appropriate given the economy is expanding at or close to trend. Mining Boom Higher mining investment “will support growth in the Australian economy at a time when the boost from the earlier expansionary settings is diminishing,” the bank said today. “It will also expand the supply capacity of the economy, with growth in resource exports likely to pick up further over coming years.” Underlying inflation, which has slowed to around 3 percent over the year to the March quarter from a peak of just over 4.5 percent in the September quarter of 2008, will cool to 2.75 percent this year before accelerating back to the top of the bank’s target range of 2 percent to 3 percent in 2012, today’s forecast said. The bank’s higher growth and inflation forecasts are based on the assumption that policy makers will boost the cash rate “broadly” in line with market expectations. Traders predict Stevens will keep borrowing costs unchanged until October, when the overnight cash rate target will be increased by a quarter point to 4.75 percent, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange late yesterday. Resource Reallocation Today’s statement also said economic growth outside Australia’s mining sector will be slower “reflecting the reallocation of resources within the economy.” “This is partly due to the high level of the real exchange rate, which is reducing the international competitiveness of import-competing and other exporting sectors such as manufacturing and tourism,” the bank said. Australia’s currency has climbed 18 percent in the last 12 months. A further international risk to Australia’s expansion is the danger that rising inflation in Asia “prompts a significant tightening of financial policies in the region, including China” where construction growth would slow, the RBA said today. “This would lead to a reduction in the demand for steel-related and energy commodities and a reassessment of prospects for the resources sector in Australia,” the bank said. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia Signals Higher Bar for Interest-Rate Rises After Leading World

May 4, 2010

By Jacob Greber and Daniel Petrie May 5 (Bloomberg) — The Reserve Bank of Australia signaled a higher bar for interest-rate increases after becoming the world’s first major central bank to withdraw “ emergency ” stimulus used during the global financial crisis. Governor Glenn Stevens raised the benchmark rate for a sixth time in seven meetings, to 4.5 percent, and said lending costs are back to “average” for most borrowers. The bank will hold off on a boost next month, according to all 24 economists surveyed by Bloomberg News after yesterday’s decision. Stevens’s job is now to decide whether surging investment in mines, along with a 20 percent jump in house prices and rising commodity costs, will push inflation above the bank’s 2 percent to 3 percent target range without further action. One keen observer: Prime Minister Kevin Rudd , who faces an election within a year and may be vulnerable should rates start to erode households’ purchasing power. “There is now a far stronger case for the Reserve Bank to pause, especially as it now believes borrowing costs are back to ‘normal’,” said Craig James , a senior economist at Commonwealth Bank of Australia in Sydney. “Until now, consumers have remained confident, but the rate hikes have made them reluctant to spend.” The central bank’s next steps will be “to move monetary policy to restrictive settings, designed to slow the economy down,” James said. ‘Significant Adjustment’ The Australian dollar, which has climbed 26 percent in the past 12 months, tumbled against the U.S. dollar by the most in a week after Stevens said yesterday that the bank’s increase in borrowing costs from a record-low 3 percent in early October was a “significant adjustment.” The local currency traded at 92.07 U.S. cents at 5:21 p.m. in Sydney yesterday from 92.45 before the decision was announced. Stevens, unlike counterparts in the U.S. and Europe, is under pressure to extend a world-leading round of rate increases as Australia’s economic expansion strengthens. Federal Reserve officials restated their intention on April 28 to keep the benchmark interest rate near zero for an “extended period.” The head of the European Central Bank, Jean-Claude Trichet , presiding over a record-low rate of 1 percent, this week diluted rules for the second time in a month to guarantee the bank will keep taking Greek government bonds as collateral for loans. Stevens said yesterday that inflation, which peaked at 5 percent in 2008, may not slow as much as earlier forecast and “now appears likely to be in the upper half of the target zone over the coming year.” New Forecasts By contrast, the governor predicted three months ago that inflation “would be in line” with its target range. The central bank will publish its latest forecasts for inflation and economic growth on May 7. “The RBA’s growth and inflation forecasts are clearly in the process of being changed,” said Stephen Roberts , a senior economist at Nomura Australia Ltd. in Sydney. Stevens “has only a relatively limited window to pause at average interest rates” and will resume increasing borrowing costs in the fourth quarter, taking the benchmark to 5.25 percent in early 2011, Roberts said. Continued rate increases may pose a danger for Rudd’s Labor Party, which has seen voter support slump to the lowest level since before taking power in 2007 and faces an election within the next year. Australian leaders are vulnerable to rate increases as more than two-thirds of the population own homes, compared with less than 50 percent in some European nations. Variable Rates More than 90 percent of mortgages taken out last year, when the benchmark rate was slashed and Rudd’s government temporarily increased grants to first-time buyers of new dwellings to as much as A$21,000 ($19,300), were on variable rates. The central bank has boosted the benchmark rate by 150 basis points since October, adding about A$3,600 a year to repayments on an average A$300,000 mortgage. Treasurer Wayne Swan said yesterday the central bank’s decision, while tough for families, means “rates are returning to more normal levels.” Australia’s four largest banks, Commonwealth Bank of Australia , National Australia Bank Ltd., Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd., yesterday boosted the rates on their variable home loans by 25 basis points to between 7.51 percent and 7.24 percent. Support for Rudd’s government has fallen behind the opposition Liberal-National coalition for the first time since 2006, according to a Newspoll published yesterday by the Australian newspaper. Voter Support The so-called two-party preferred vote for Labor dropped to 49 percent in the survey of 1,200 voters taken last weekend from 54 percent in mid April, and 52.7 percent when Rudd won in November 2007. The coalition’s support rose to 51 percent from 46 percent. The margin of error is plus or minus 3 percent. There are also signs that the bank’s previous moves are prompting consumers to pare spending. A measure of consumer confidence published on April 14 by Westpac Banking Corp. slipped 1 percent last month, and separate reports showed retail sales dropped 1.4 percent in February and home-building approvals slumped 3.3 percent. Woolworths Ltd., Australia’s biggest retailer, cut its annual sales growth forecast on April 30 in the absence of government cash handouts that stoked demand last year. “We don’t need a hyped up central bank goose stepping all over the economy like they did in early 2008,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “If the RBA does ease off a touch now, they may need to engage the odd 50-basis-point move down the track. That’s a small price to pay, though, to be more certain on the economy now.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Yen Declines to Eight-Month Low as Global Recovery Drives Demand for Yield

May 3, 2010

By Ron Harui May 4 (Bloomberg) — The yen fell to an eight-month low against the dollar and weakened versus the euro as signs the global economic recovery is gaining momentum damped demand for Japan’s currency as a refuge. The yen dropped against all 16 of its major counterparts before reports today that economists said will show U.S. home sales gained for a second month and U.K. manufacturing expanded. Australia’s dollar rose toward its highest level in 19 months against the yen on speculation the Reserve Bank will raise interest rates at a meeting today. “There’s every reason to believe that growth prospects will be very good,” said Adam Carr , a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s largest interdealer broker. “The mood is for risk taking, and we’ll see a drop in the yen.” Japan’s currency declined to 94.92 per dollar as of 11:23 a.m. in Singapore from 94.54 in New York yesterday, after earlier falling to 94.99, the weakest since Aug. 24, 2009. It dropped 0.4 percent to 125.29 per euro and lost 0.3 percent to 87.78 versus Australia’s dollar. The euro was at $1.3199 from $1.3195 yesterday, after dropping to $1.3115 on April 28, the weakest since April 28, 2009. Japanese financial markets were shut today for a holiday. Manufacturing, Spending The yen slipped after U.S. reports yesterday showed manufacturing in the world’s largest economy grew at the fastest pace since June 2004 and consumer spending increased. U.S. pending home sales rose 5 percent in March, and a gauge of U.K. manufacturing climbed to 57.5 in April from 57.2 in March, according to Bloomberg News surveys. U.S. companies added 188,000 workers in April, up from 162,000 in March, a separate survey showed before the May 7 report. “We expect a better-than-consensus non-farm payrolls print to support a medium-term higher dollar-yen, targeting the 96 level,” analysts led by Hans-Guenter Redeker , London-based global head of foreign-exchange strategy at BNP Paribas SA, wrote in a research note today. Japan’s currency also fell after Standard & Poor’s indicated a fiscal plan scheduled for next month by Prime Minister Yukio Hatoyama ’s government may be key to whether it will cut the nation’s sovereign credit rating. The proposal will be “an important statement of the government’s commitment” to rein in the deficit, William Hess , director of sovereign ratings for Asia, said yesterday in Tashkent, Uzbekistan. “Something has to appear to change our assessment for where things could end up.” Australian Dollar Australia’s dollar rose for a second day against the yen on speculation the South Pacific nation’s central bank will raise interest rates for a sixth time in seven meetings. The Reserve Bank will boost the cash rate target to 4.5 percent, according to 18 of 24 economists surveyed by Bloomberg. “We are leaning toward a 25 basis point hike this afternoon, given inflation is ticking up,” said Ian Fowler , senior corporate foreign exchange dealer at OzForex Ltd. in Sydney. “We may see Aussie continue to be supported and move higher against the yen.” Benchmark interest rates of 4.25 percent in Australia and 2.5 percent in New Zealand compare with 0.1 percent in Japan, making the South Pacific nations’ assets attractive to investors seeking higher returns. The risk in such trades is that currency market moves will erase profits. One-Year Low The euro was near a one-year low against the dollar as investors sought more evidence that a 110 billion-euro ($145 billion) rescue package will resolve Greece’s debt crisis. The three-year financial lifeline requires Greece to reduce its budget deficit below the European Union limit of 3 percent of gross domestic product by the end of 2014, a year later than originally planned. Aid for Greece is of “enormous” importance, German Chancellor Angela Merkel said yesterday after convening a special meeting of her Cabinet that approved loans for Greece of as much as 22.4 billion euros over three years. “Even after the announcement of the aid package, investor uncertainty will unlikely decrease strongly until the member nations ratify the agreement,” Brian Kim , a currency strategist in Stamford, Connecticut, at UBS AG, wrote in a research note yesterday. “Unresolved structural problems across the euro-zone will also weigh on investor sentiment.” The euro may drop to $1.30 in three months, he said. Greek government workers plan to shut down hospitals and schools today and disrupt flights as protests escalate after 30 billion euros of additional wage cuts and tax increases were unveiled this week. To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net .

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Yen Declines as Signs of Worldwide Economic Recovery Spur Demand for Yield

May 3, 2010

By Ron Harui May 4 (Bloomberg) — The yen fell against most higher- yielding currencies as signs the global economic recovery is gathering momentum boosted demand for riskier investments. Japan’s currency weakened versus 14 of its 16 major counterparts before a U.S. report that may show pending home sales gained for a second month and a U.K. report forecast to show manufacturing grew in April. Australia’s dollar advanced toward its highest level in 19 months against the yen on speculation the nation’s central bank will raise interest rates. “There’s every reason to believe that growth prospects will be very good,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “The mood is for risk taking, and we’ll see a drop in the yen.” The yen fell to 124.80 per euro at 8:51 a.m. in Tokyo from 124.74 in New York yesterday. It was at 94.60 per dollar from 94.54. The yen slid to 87.63 versus the Australian dollar from 87.54, after reaching 88.06 on April 30, the weakest level since September 2008. The euro fetched $1.3191 from $1.3195. The Dow Jones Industrial Average rose the most since February after a report showed U.S. manufacturing expanded in April at the fastest pace since June 2004. The number of contracts to buy previously owned homes rose 5 percent in March, a Bloomberg News survey showed before the report today. A gauge of U.K. manufacturing based on a survey of companies climbed to 57.5 in April from 57.2 in March, a separate Bloomberg survey showed. The report will be released today in London. RBA Meeting Australia’s dollar advanced for a second day against the yen on speculation the Reserve Bank of Australia will today raise interest rates for a sixth time in seven meetings. The RBA will boost the overnight rate target to 4.5 percent, according to 18 of 24 economists surveyed by Bloomberg. “We are leaning toward a 25 basis point hike this afternoon given inflation is ticking up toward the high-end of the RBA’s band,” said Ian Fowler , senior corporate foreign exchange dealer at OzForex Ltd. in Sydney. “We may see Aussie continue to be supported and move higher against the yen.” Benchmark interest rates of 4.25 percent in Australia and 2.50 percent in New Zealand compare with 0.1 percent in Japan, making the South Pacific nations’ assets attractive to investors seeking higher returns. The risk in such trades is that currency market moves will erase profits. To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net

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AUD/USD: Trading the Reserve Bank of Australia Interest Rate Decision

April 30, 2010

AUD/USD: Trading the Reserve Bank of Australia Interest Rate Decision

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India May Increase Rates for Second Time in Month to Bring Down Inflation

April 18, 2010

By Cherian Thomas April 19 (Bloomberg) — India’s central bank may raise interest rates for the second time in a month to tame the fastest inflation among Group of 20 nations. The Reserve Bank of India will probably increase the reverse repurchase rate to 3.75 percent from 3.5 percent and the repurchase rate to 5.25 percent from 5 percent, according to the median forecast of 25 economists in a Bloomberg News Survey. The announcement is due at 11:15 a.m. in Mumbai tomorrow. Governor Duvvuri Subbarao ’s struggle against inflation exposes the roadblocks in the Indian economy — inadequate capacity in power, roads and ports that drive up prices. In China, where infrastructure spending is double that of India, the fastest growth in almost three years in the first quarter came with a slowdown in inflation, complicating the decision in the country on when to raise interest rates. “Domestic demand pressures are building in the Indian economy without a commensurate increase in capacity creation,” said Chetan Ahya , a regional economist at Morgan Stanley in Singapore. “That coupled with a rise in global commodity prices is resulting in a spike in non-food inflation.” Consumer prices paid by industrial workers in India rose 14.9 percent in February from a year earlier. The nation’s wholesale-price inflation rate held at a 17-month high of 9.9 percent in March. India’s $1.2 trillion economy may grow 7.5 percent in 2010, the fastest pace after China among the major economies, according to the World Bank. Subbarao on March 19 raised interest rates by a quarter-point for the first time in almost two years. Poor Roads The Reserve Bank may also increase the cash reserve ratio , or the proportion of deposits that lenders need to set aside as reserves, to 6 percent from 5.75 percent, according to the Bloomberg survey. Nine of 25 economists surveyed forecast a half-point increase in the reverse repurchase rate. India produces about 10 percent less electricity than it needs, while roads, which account for 65 percent of the nation’s cargo, are plagued by single lanes and irregular surfaces, boosting companies’ costs, according to government estimates. Infrastructure spending accounts for just 4 percent of India’s gross domestic product compared with 9 percent of GDP in China, according to CLSA Asia-Pacific Markets. The Planning Commission of India estimated last month the country needs to more than double spending on infrastructure to $1 trillion in the five years to March 2017. Oil Prices Increasing costs for commodities such as oil, which India imports to meet three-quarters of its needs, are also spurring price pressures. Crude oil prices have surged 70 percent in the past year. Wal-Mart Stores Inc. , the world’s largest retailer, said last week India’s inflation would slow by at least two percentage points if the government agreed to allow foreign investment in retail. Wal-Mart, Carrefour SA and Tesco Plc are betting that their supply chain network and sourcing ability will allow them to remove middle men and sell products directly to consumers in India at lower prices. Local laws, aimed at protecting small shop owners, let global companies operate only wholesale stores that sell groceries and goods to retailers and businesses.     An increase in the cost of Indian interest-rate swaps signaled investors are using the derivatives to guard against an increase in borrowing costs. One-year swap rates have added 12 basis points in the past two weeks, the most in such a period since December. The rate, a fixed payment made to receive floating rates, touched a two-month high of 5.13 percent on April 15. Stronger Currency The yield for benchmark 10-year Indian government bonds has added 47 basis points this year to 8.06 percent on the inflation outlook. The central bank has allowed the rupee to appreciate to make imports cheaper and fight inflation. The currency has gained 4.4 percent since Jan. 1 against the U.S. dollar. “India has the highest inflation of any of the economies currently around Asia,” said Timothy Moe , Goldman Sachs Group Inc. chief Asian strategist. “The economy we felt was most in need of raising rates.” Consumer prices in China rose 2.4 percent in March, less than economists expected. India, Australia and Malaysia have already raised borrowing costs, while Singapore last week announced it will allow its currency — the city-state’s principal monetary tool — to strengthen, as Asia Pacific economies recovered from the worst recession since World War II. ‘Cost Pressures’ Prices may rise further in India as the Purchasing Managers’ Index, released by HSBC Group Plc and Markit Economics, was 57.8 in March, indicating growing consumer demand. A reading above 50 indicates a gain in factory production. HSBC economist Robert Prior-Wandesforde said the most “attention-grabbing” aspect of the March factory index data was the surge in input prices, which suggests that companies are facing “sizeable and mounting cost pressures.” Toyota Motor Corp. ’s Indian unit on April 1 raised prices of its Corolla, Innova and Fortuner vehicles to offset rising input costs, while Indian Oil Corp. , the nation’s second-largest refiner, increased jet fuel prices. To contact the reporter on this story: Cherian Thomas in Bangalore at Cthomas1@bloomberg.net

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Australia May Face `Inflationary’ Level of Unemployment Five Years Early

April 8, 2010

By Jacob Greber April 9 (Bloomberg) — Australia’s jobs boom may push down the nation’s unemployment rate to a level at which a shortage of skilled workers begins to stoke inflation five years earlier than the government predicted in November. The jobless rate has tumbled to 5.3 percent in March from 5.8 percent in October, and is forecast by economists including Craig James at Commonwealth Bank of Australia to slide below 5 percent this year. Prime Minister Kevin Rudd ’s government forecast five months ago that unemployment would peak at 6.75 percent in the current quarter, before falling to 5 percent in fiscal 2015. That’s the rate that Australia’s Treasury has referred to as the so-called NAIRU, or non-accelerating inflation rate of unemployment, a measure economists use to assess when labor shortages feed wage and inflation pressures. “We’re very close to that level of unemployment where inflation accelerates,” said Joshua Williamson , an economist at Citigroup Inc. in Sydney, who predicts the jobless rate will fall to 4.8 percent this year. “There’s not a lot of wriggle room left in the economy, and that’s why the central bank will have to raise borrowing costs above a neutral rate toward 6.25 percent by the end of 2011,” he said. Mounting evidence that the Australian economy is generating more jobs and growing faster than the government and central bank predicted a year ago is increasing pressure on policy makers led by Governor Glenn Stevens to extend a world-leading series of interest-rate gains. ‘Much Lower’ The Reserve Bank of Australia increased the benchmark overnight cash rate target this week by a quarter percentage point to 4.25 percent, the fifth increase since the start of October when the rate was at a half-century low of 3 percent. By contrast, policy makers in the U.S., Europe and Japan have kept borrowing costs at or close to record lows. Governor Stevens this week signaled further increases in coming months, citing evidence that unemployment “appears to have peaked at a much lower level than earlier expected.” Investors are betting there is a 28 percent chance of a quarter-percentage-point increase in the overnight cash rate target to 4.5 percent on May 4, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 3:05 p.m. yesterday. The central bank will increase its benchmark to 5.25 percent by the end of March 2011, according to the median forecast of 18 economists surveyed by Bloomberg News this week. Upcoming Election The number of people employed gained 19,600 from February, when it fell a revised 4,700, the statistics bureau said in Sydney yesterday, matching the median forecast of 20 economists surveyed by Bloomberg News. Australia’s jobless rate of 5.3 percent is almost half the 9.7 percent rate in the U.S. and 10 percent in the European Union. Lower unemployment may help Prime Minister Rudd win an election due to be called within the next 12 months even as interest rates threaten to climb higher. The jobs boom may also enable the government to return its budget to surplus sooner than the current forecast of fiscal 2016 amid higher income tax revenue and lower welfare spending. “Australia is likely to be in fiscal balance within five years, if not sooner,” said Annette Beacher , an economist at TD Securities Ltd. in Singapore. “If the unemployment rate is 5 percent by June, this provides a substantial ‘automatic stabilizer’ boost to the budget balance.” Treasurer Wayne Swan will publish the government’s annual budget on May 11, as well as forecasts for economic growth and unemployment. Mining Boom Treasury said in November that the unemployment rate is projected to decline steadily over the period from 2011-12 to 2014-15, reaching the NAIRU of 5 percent in 2014-15, two years earlier than anticipated in the budget published in May 2009. In recent months Australia’s central bank policy makers have expressed increased concern that a surge in resources projects such as the A$43 billion ($40 billion) Chevron Corp. – led Gorgon natural gas project in Western Australia may worsen a skills shortage and stoke inflation.     The number of workers in Australia’s mining industry almost doubled to 174,500 in the three months through February from 94,900 in the same period in 2003, according to estimates from the statistics bureau. More than A$100 billion of resources projects in Western Australia are likely to generate about 40,000 construction jobs and 12,500 permanent positions, a state government report released last year shows. Skills Shortage “If we want to have all this mining investment” the “other parts of the economy have to, for the moment, be restrained somehow,” central bank Deputy Governor Ric Battellino said Feb. 24. “There’s only so much activity that can take place.” Gross domestic product grew 0.9 percent in the fourth quarter from the previous three months, the most in almost two years, helped by China’s demand for shipments of iron ore and coal, Australia’s biggest exports. “A tighter labor market raises the odds of catch-up wage increases,” said Kieran Davies , a senior economist at Royal Bank of Scotland Group Plc in Sydney. “This suggests inflation should accelerate next year, and which is why the Reserve Bank will move beyond neutral to tight policy in 2011.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Video: Strategist Desbarres Discusses RBA, Australian Dollar: Video

April 5, 2010

April 6 (Bloomberg) — Olivier Desbarres, a currency strategist with Credit Suisse Group AG, talks with Bloomberg’s Haslinda Amin about the Reserve Bank of Australia’s monetary policy. Desbarres, speaking from Singapore, also discusses Australia’s economy and currency. (This is an excerpt of the full interview. Source: Bloomberg)

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Australian Dollar Lures AMP, BlackRock as Gain to Parity Looms on Yields

April 5, 2010

By Candice Zachariahs April 6 (Bloomberg) — Investors are the most bullish in almost three years on the Australian dollar on bets the central bank will extend its steepest interest-rate increases since 2000. That contrasts with analysts who have cut forecasts on the currency for three months. Swaps traders are pricing a 52 percent chance that Reserve Bank Governor Glenn Stevens will raise the benchmark rate for a fifth time in six meetings today and a 78 percent chance it will be 5 percent by year-end. The world’s best-performing major currency in the past year also has further to go as commodity prices rise, say investors including AMP Capital and BlackRock Inc., the world’s biggest asset manager. “A very proactive RBA will drive yield differentials,” said Kurt Magnus , director of institutional foreign exchange at Westpac Banking Corp., the nation’s second-largest lender. “There is a real risk that the Australian dollar will trade at parity by June 30.” The currency has never reached parity with the U.S. dollar since it started trading freely in 1983. It has advanced against all of its 16 most-traded counterparts in the past year, strengthening 29 percent against the greenback. Fourteen of 23 economists in a Bloomberg News survey expect the RBA to increase rates to 4.25 percent from 4 percent at its meeting today. The median prediction for the Aussie’s level by June of this year fell to 90 U.S. cents in March, based on Bloomberg surveys of analysts, declining for a third month to the lowest since September 2009. ‘High Yielder’ Futures traders last month increased bets that the Australian dollar will gain against the greenback to the most since June 2007, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Aussie compared with those on a drop — so-called net longs — rose to 74,339 on March 23 in a fifth week of gains. The long position slipped to 69,340 as of March 30. “The real story is that Australia is a moderate yielder becoming a high yielder in a world where risk assets on a global basis are supported,” said Richard Benson , who oversees $14 billion of currency funds as an executive director in London at Millennium Asset Management. “If we have a stable to weaker U.S. dollar –typified by the Dollar Index — then Aussie is highly probable to trade through parity.” The Australian dollar is heading for a third monthly gain versus the greenback after policymakers raised the target rate by 1 percentage point over five meetings beginning Oct. 6 from a half-century low. That’s the most aggressive tightening since the Reserve Bank of Australia increased its benchmark 1.5 percentage points over seven meetings ending August 2000. ‘North of Neutral’ “It’s not wise to leave interest rates right down at rock bottom any longer than you need,” Stevens said in his first television interview since taking the helm of the RBA in 2006, broadcast by Channel Seven on March 29. House prices “are getting quite high,” he said, signaling rates may need to be increased further to contain inflation. “The RBA probably has to get north of neutral, so that means something like 5.5 percent by year-end is not out of the question,” said Stephen Miller , a managing director in Sydney at BlackRock, which oversees $3.2 trillion globally. BlackRock is “building” some long positions in the Aussie and prefers to bet on gains in the currency versus the euro and yen, he said. Currency options may “play a very large role in taking the Australian dollar through its old highs and then through parity very quickly,” versus the greenback, Westpac’s Magnus said. Digital Options Options market makers are short so-called digital options, and as the currency rises they “will have to buy Aussie aggressively to rehedge their positions,” he said. In digital options, sometimes referred to as binary options, the return is either a specific nominal amount or nothing, with the payoff depending on whether the underlying security trades above or below the so-called strike price. A bank that sold a digital call option would likely need to hedge against a payout by purchasing large amounts of the physical asset as the spot price approaches the strike price. AMP Capital, which manages $90 billion, is betting on gains in the Aussie dollar toward $1 on prospects Australia’s yield premium and higher prices for iron ore and other commodities will drive demand. Vale SA, a Brazilian company that’s the world’s largest iron ore producer, and Melbourne-based BHP Billiton Ltd. last month ended a 40-year system of setting annual prices by signing short-term contracts with Asian mills. Vale won a 90 percent increase. Trimmed Forecasts AMP Capital would add to its position if the Aussie increased above 92.50 cents, rising above its March high and breaking the top of the downtrend line that’s been in place since November, said Shane Oliver , Sydney-based head of investment strategy. The currency reached 94.06 cents on Nov. 16, the strongest since August 2008. Banks including JPMorgan Chase & Co, Commerzbank AG and Royal Bank of Scotland Plc have trimmed Aussie forecasts after predicting in December that it would reach parity this year. Estimates for where the currency will trade in the second quarter of 2010 rose every month from 82 U.S. cents last July to a peak of 95 cents in December, according to Bloomberg data. “We’re going to see better-than-expected data out of the U.S. for much of this year, and the dollar should generally do well,” said Greg Gibbs , a currency strategist at Royal Bank of Scotland in Sydney. “It remains a very important barrier, and the closer we get to $1 the Aussie seems to struggle.” National Australia Bank Ltd., Standard Chartered Plc, Canadian Imperial Bank of Commerce and HSBC Holdings Plc are among companies still forecasting the Aussie to reach $1 this year. Investors are betting improvements in retail sales, industrial production and employment will prompt the Federal Reserve to increase borrowing costs, boosting demand for the U.S. dollar. Futures show a 60 percent chance the Fed will raise its benchmark interest rate as early as November, compared with 45 percent odds a month ago. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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Greenspan Takes Issue With Yellen on Fed’s Role in Creating Housing Bubble

March 26, 2010

By Rich Miller March 26 (Bloomberg) — Alan Greenspan disputed suggestions by his former central bank colleague and current San Francisco Federal Reserve Bank President Janet Yellen that the Fed could have headed off the housing bubble by raising interest rates. “The general notion the Fed was propagator of the bubble by monetary policy does not hold up to the evidence,” the former Fed chairman said in an interview today on Bloomberg Television’s “Political Capital With Al Hunt.” Yellen, who served as a governor on the Washington-based Fed board from 1994 to 1997 when Greenspan was at the helm, told a conference last June that “higher short-term interest rates probably would have restrained the demand for housing” and “slowed the pace of house price increases” before the bubble burst in 2006. Greenspan, who presented a paper on the financial crisis to a Brookings Institution conference in Washington earlier this month, said that the rise in house prices was fed by low long- term interest rates on Treasury securities and home loans that stayed down even as the Fed began tightening credit in 2004. “We ran into what we called the conundrum,” he said. “For decades, every time the Fed raised its short-term rates, the 10-year note, which is really a proxy for mortgage rates , the yield went up with it. This time it did not.” Behind the low level of long-term rates: a global savings glut as China, Russia and other emerging market economies earned more money on exports than they could easily invest. Those “massive changes and flows of fund” kept long rates low and pushed up house prices “across the globe,” Greenspan said. ‘Once-in-a-Century Event’ The 84-year-old former Fed chairman called the financial crisis “a once-in-a-century event” whose consequences proved far more devastating than had been widely expected. “We all misjudged the risks involved,” he said. “Everybody missed it — academia, the Federal Reserve, all regulators.” The solution is for financial institutions to hold much more capital than they have in the past, so that they can draw on that money in times of crisis, according to Greenspan. Without adequate capital, any attempt at financial reform is likely to fail, he added. “I think we’re making this issue much too complex,” he said. “If you have adequate capital requirements, it almost doesn’t matter what else you do with regulation.” To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.net

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New Zealand Economy Grows at Fastest Pace in Two Years on Higher Spending

March 24, 2010

By Tracy Withers March 25 (Bloomberg) — New Zealand’s economy grew at the fastest pace in two years in the fourth quarter as consumer spending, manufacturing and house construction increased. Gross domestic product rose 0.8 percent from the previous three months, Statistics New Zealand said in Wellington today. Growth matched the median estimate in a Bloomberg News survey of 13 economists and followed a revised 0.3 percent gain in the third quarter. Accelerating growth adds to signs the central bank will raise borrowing costs in the second quarter to curb inflation pressures. Reserve Bank Governor Alan Bollard, who forecast fourth-quarter growth of 0.6 percent, said on March 11 he expected to raise the benchmark interest rate from a record-low 2.5 percent around the middle of the year. “The Reserve Bank cannot wait forever if growth continues to improve,” Doug Steel , an economist at Bank of New Zealand Ltd. in Wellington, said ahead of the report. “We think the first increase will be in June. There are still question marks over the sustainability of the pickup in demand.” New Zealand’s dollar bought 70.25 U.S. cents at 10.51 a.m. in Wellington from 70.20 cents before the report was released. Nine of 14 economists surveyed by Bloomberg expect an interest-rate increase in June. Two predict an April move and three forecast a change in the third quarter. Annual Growth The economy grew 0.4 percent in the fourth quarter from a year earlier, also matching economists’ expectations. That’s the first annual growth since the second quarter of 2008. Bollard said this month the economy is recovering from a recession that ended in the second quarter last year, buoyed by rising consumer confidence and increased spending. Confidence surged to a three-year high in January, according to an index compiled by Roy Morgan Research and ANZ National Bank Ltd. Still, New Zealand’s expansion may be subdued when compared with previous recoveries, Bollard said. New Zealand has fallen behind other Asia-Pacific countries in rebounding from the global recession as it relies less on exports to China, the world’s fastest-growing major economy. The central bank forecasts quarterly growth will average 1 percent this year as a global recovery buoys exports and businesses hire more workers in response to rising demand. Household Spending Household spending , which makes up 60 percent of the economy, rose 0.9 percent. Sales of used cars, home appliances and other so-called durable goods gained 1.4 percent. Sales of food and non-durable items also increased. Spending on services fell, led by health and life insurance. Briscoe Group Ltd. , which owns sporting goods and home-ware stores, increased sales by 14 percent in the three months ended Jan. 31 from a year earlier, it said last month. The Auckland- based retailer lowered prices to encourage customers to start spending as the recovery got under way. Manufacturing rose 4.5 percent, the first increase in eight quarters, led by output from food, metal and chemical processing. Inventories increased for the first time in a year as manufacturers rebuilt stocks, anticipating increased demand, the agency said. Investment in residential building rose 4.8 percent. Total construction fell after declines in work on commercial offices and government buildings. Increased activity in wholesale trade, accommodation, real estate services and communications also contributed to GDP, the agency said. Output from primary industries fell in the quarter, led by mining. Farm output increased 1.1 percent. Milk Production Fonterra Cooperative Group Ltd. , the world’s largest dairy exporter, said yesterday milk production increased 1 percent in the six months ended Jan. 31. Business investment fell 2.5 percent, today’s report showed. There was a 26 percent drop in investment on exploration software. Commercial construction also declined while companies spent more on plant, machinery and transport equipment. Exports of goods and services fell 0.9 percent led by a decline in dairy products, logs and reduced spending by tourists. Imports rose 6 percent, buoyed by machinery and transport equipment purchases, and spending by citizens traveling overseas. Net exports subtracted from growth. Excluding exports and imports, gross national expenditure surged 3 percent in the quarter, the agency said. The GDP deflator, a measure of prices, rose 1.6 percent in the year ended Dec. 31. To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

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Australia Raises Key Rate; Currency Pares Advance on Outlook for Inflation

March 2, 2010

By Jacob Greber March 2 (Bloomberg) — Australia’s central bank resumed raising interest rates after a one-meeting pause, judging that faster-than-anticipated economic growth will allay concerns that European deficits may roil global confidence. Reserve Bank of Australia Governor Glenn Stevens increased the benchmark overnight cash rate target to 4 percent from 3.75 percent in Sydney today, as forecast by 14 of 19 economists in a Bloomberg News survey . The rest saw no change. Stevens said rates should be closer to “average,” which he last week signaled may be 75 basis points higher than today’s new level. The biggest jobs boom in more than three years and a surge in business confidence suggest Australia’s economy is already growing at or close to trend, after escaping recession during the global crisis, Stevens said. Today’s decision indicated the economic figures outweighed concerns about global sovereign debt risks, which helped convince the RBA to stand pat last month. “It seems they are determined to deliver a rate hike every couple of months or so,” said Stephen Walters , chief economist at JPMorgan Chase & Co. in Sydney. Still, there is enough global risk “out there that they’d want to be a bit cautious about” another move in April, he added. The RBA paused last month after sovereign-debt risks sparked by Greece sent the euro and emerging stock markets tumbling. Currency Performance The Australian dollar fell to 89.82 U.S. cents at 5:31 p.m. in Sydney from 90 cents just before the decision was announced. It has soared 42 percent against its American counterpart in the past year, making it the best performer among the most-traded currencies. The two-year government bond yield rose 2 basis point to 4.59 percent from 4.57 percent before the decision. While most loan rates have climbed by close to a percentage point since the Reserve Bank began raising rates in October, “interest rates to most borrowers nonetheless remain lower than average,” Stevens said. Australia’s four biggest lenders all said borrowing costs are under review following the RBA’s decision. Today’s increase by Stevens widens the gap between Australia’s cash rate target and the U.S. benchmark to 3.75 percentage points, the most since January 2009. The difference between the Australian and U.K. benchmarks is now 350 basis points, the widest since 1990. Retail Sales The announcement came hours after the government reported retail sales climbed 1.2 percent in January from December, exceeding the forecasts of all 19 economists in a Bloomberg News survey. A separate report showed home-building approvals fell in January, affected by the Reserve Bank’s rate increases and a reduction in government grants to first-time buyers. Evidence of faster growth convinced most economists in a Bloomberg News survey on Feb. 26 to predict today’s move, after a majority in an earlier Feb. 12 survey saw no change. Sovereign debt concerns have caused the euro to tumble since the start of the year and emerging stock markets to retreat. “Credit conditions remain difficult in some major countries as banks continue to face loan losses associated with the period of economic weakness,” Stevens said. “Concerns regarding some sovereigns remain elevated.” Today’s move makes Stevens the first central banker from a Group of 20 economy to boost benchmark rates this year, after leading the way in presiding over three moves in the fourth quarter. The increases brought the rate up from a half-century low of 3 percent. Global Context Pressure is also mounting on central banks in Canada, India, Malaysia and Indonesia to lift borrowing costs soon. Malaysia’s economy grew a greater-than-forecast 4.5 percent last quarter from a year earlier, and a report yesterday showed Indonesia’s inflation was at a nine-month high. Canada’s expansion is the fastest since 2000, a report showed late yesterday. By contrast, U.S. Federal Reserve Chairman Ben S. Bernanke said last week the world’s largest economy is in a “nascent” recovery that still requires low rates. The Fed has kept its benchmark close to zero since late 2008. The European Central Bank’s rate is at a record low of 1 percent. Australia’s economy probably grew the most in 1 1/2 years in the fourth quarter, boosted by A$22 billion ($20 billion) in spending by Prime Minister Kevin Rudd on roads and schools. Gross domestic product rose 0.9 percent in the fourth quarter from the previous three months, when it gained 0.2 percent, according to the median estimate of 18 economists surveyed by Bloomberg. The figures will be released at 11:30 a.m. tomorrow. Lending Rebounds “Labor-market data and a range of business surveys suggest growth in economy may have already been at or close to trend for a few months,” Stevens said today. Banks are becoming more willing to lend to businesses and “investment in the resources sector is very strong,” he said. GDP growth will quicken to an annual pace of 3.25 percent in the fourth quarter from 2 percent late last year, the Reserve Bank said in February. “The rising rates are a symptom of a growing Australian economy,” said Jason Teh , who helps manage $3.2 billion at Investors Mutual in Sydney. “The economy is growing and the RBA has to do something about it. It just came down to timing.” A month ago, Governor Stevens cited concern about sovereign debt in Europe and turmoil on global financial markets for keeping the benchmark rate unchanged, a move that confounded the forecasts of all 20 economists surveyed by Bloomberg predicting an increase. Reports published since then suggest inflation pressures may strengthen as a worsening skills shortage boosts wages. Job Market Employers added 194,600 jobs in the five months through January, the most in more than three years, cutting the unemployment rate to an 11-month low of 5.3 percent. Business investment jumped in the fourth quarter at almost three times the pace predicted by analysts as companies raised forecasts for investment plans to a five-year high, a report showed last week. BHP Billiton Ltd. , the world’s largest mining company, said last month it will increase capital spending on iron-ore mines and oil fields by 63 percent next year to $20.8 billion. Commodity exports may jump next fiscal year by 15 percent to A$187 billion, the second-highest level on record, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in a report. Chevron, Exxon Mobil Corp. and Royal Dutch Shell Plc have this year begun construction on the A$43 billion Gorgon natural- gas venture, the nation’s single-biggest investment project that is forecast to generate as many as 10,000 jobs. Tightening ‘Process’ “The board judges that with growth likely to be close to trend and inflation close to the target over the coming year, it is appropriate for interest rates to be closer to average,” Stevens said. “Today’s decision is a further step in that process.” The central bank’s so-called annual weighted-median gauge of core inflation rose 3.6 percent in the three months through December. The measure has held above the top of the bank’s target range of between 2 percent and 3 percent since the third quarter of 2007. “If anyone is going to boom, surely it’s Australia,” Gerry Harvey , chairman of Australia’s largest electronics retailer Harvey Norman Holdings Ltd. , said in a Feb. 26 interview. “We never really went into a recession at all. Our unemployment rate was projected to reach 7, 8, 9, or 10 percent, but it never even got to 6 percent.” House prices jumped 11.8 percent in the year through January, according to a Feb. 26 report by real-estate monitoring company RP Data-Rismark, whose figures are used by the central bank in its quarterly monetary policy statement. Today’s rate increase means households with a A$300,000 mortgage will be charged an extra A$50 a month if commercial lenders raise borrowing costs by the same level, adding to the A$150 increase in monthly payments last quarter. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia Raises Benchmark Rate to 4% as Recovery Withstands Debt Concerns

March 1, 2010

By Jacob Greber March 2 (Bloomberg) — Australia’s central bank resumed raising interest rates after a one-meeting pause, judging that the economy is strong enough to withstand any impact from global investor concerns on sovereign debt risks. Reserve Bank Governor Glenn Stevens increased the benchmark overnight cash rate target to 4 percent from 3.75 percent in Sydney today, as forecast by 14 of 19 economists surveyed by Bloomberg News. The rest predicted no change. Today’s decision may stoke the Australian dollar, the best- performing major currency in the past year, and it reflects the strength of an economy that escaped recession during the global crisis. The biggest jobs boom in more than three years, a jump in house prices and a business-confidence rebound put pressure on Stevens to return rates toward what he calls a “normal” level. “The economy is recovering with much less slack than in past upswings,” Kieran Davies , a senior economist at Royal Bank of Scotland Group Plc in Sydney, said ahead of today’s decision. “The immense mining-led strength of the outlook for business investment should also reinforce the Reserve Bank’s view that China will support growth in Australia despite ongoing troubles in Europe.” Today’s increase by the Reserve Bank widens the gap between Australia’s cash rate target and the U.S. benchmark to 3.75 percentage points, the most since January 2009. The difference between the Australian and U.K. benchmarks is now 350 basis points, the widest since 1990. The announcement came hours after the government reported retail sales climbed 1.2 percent in January from December, exceeding the forecasts of all 19 economists in a Bloomberg News survey. A separate report showed home-building approvals fell in January, affected by the Reserve Bank’s rate increases and a reduction in government grants to first-time buyers. Switch in View Evidence of an accelerating expansion convinced most economists to predict today’s move after a majority in the Bloomberg News survey on Feb. 12 saw no change. Sovereign debt concerns have caused the euro to tumble since the start of the year and emerging stock markets to retreat. Today’s move makes Stevens the first central banker from a Group of 20 economy to boost benchmark rates this year, after leading the way in presiding over three moves last quarter. The increases brought the rate up from a half-century low of 3 percent. Pressure is also mounting on central banks in Canada, India, Malaysia and Indonesia to lift borrowing costs soon. Malaysia’s economy grew a greater-than-forecast 4.5 percent last quarter from a year earlier, and a report yesterday showed Indonesia’s inflation was at a nine-month high. Canada’s expansion is the fastest since 2000, a report showed late yesterday. Fed Standing Pat By contrast, U.S. Federal Reserve Chairman Ben S. Bernanke said last week the world’s largest economy is in a “nascent” recovery that still requires low rates. The Fed has kept its benchmark close to zero since late 2008. The European Central Bank’s rate is at a record low of 1 percent. Australia’s economy probably grew the most in 1 1/2 years in the fourth quarter, boosted by A$22 billion ($20 billion) in spending by Prime Minister Kevin Rudd on roads and schools. Gross domestic product rose 0.9 percent in the fourth quarter from the previous three months, when it gained 0.2 percent, according to the median estimate of 18 economists surveyed by Bloomberg. The figures will be released at 11:30 a.m. tomorrow. Australia has emerged from the global financial crisis “better than most,” helped by a “strong macroeconomic” environment, Governor Stevens said in Melbourne yesterday. GDP growth will quicken to an annual pace of 3.25 percent in the fourth quarter from 2 percent late last year, the Reserve Bank said in February. Pessimism Eased “I argued in February that the Reserve Bank would be unable to pause for any length of time in the face of strong economic data,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “Stock markets over the past week have generally been more buoyant, and the news flow less pessimistic than February.” A month ago, Governor Stevens cited concern about sovereign debt in Europe and turmoil on financial markets for keeping the benchmark rate unchanged, a move that confounded the forecasts of all 20 economists surveyed by Bloomberg predicting an increase. Reports published since then suggest inflation pressures may strengthen as a rising skills shortage boosts wages. Employers added 194,600 jobs in the five months through January, the most in more than three years, cutting the unemployment rate to an 11-month low of 5.3 percent. Business investment jumped in the fourth quarter at almost three times the pace predicted by analysts as companies raised forecasts for investment plans to a five-year high, a report showed last week. BHP Plans BHP Billiton Ltd. , the world’s largest mining company, said last month it will increase capital spending on iron-ore mines and oil fields by 63 percent next year to $20.8 billion. Commodity exports may jump next fiscal year by 15 percent to A$187 billion, the second-highest level on record, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in a report. Chevron, Exxon Mobile Corp. and Royal Dutch Shell Plc have this year begun construction on the A$43 billion Gorgon natural- gas venture, the nation’s single-biggest investment project that is forecast to generate as many as 10,000 jobs. The economy has less scope than previously expected for “robust” growth that doesn’t stoke inflation, Governor Stevens told a parliamentary committee in Canberra on Feb. 19. “Monetary policy must therefore be careful not to overstay a very expansionary setting.” Inflation Measure The central bank’s so-called annual weighted-median gauge of core inflation rose 3.6 percent in the three months through December. The measure has held above the top of the bank’s target range of between 2 percent and 3 percent since the third quarter of 2007. “If anyone is going to boom, surely it’s Australia,” Gerry Harvey , chairman of Australia’s largest electronics retailer Harvey Norman Holdings Ltd. , said in a Feb. 26 interview. “We never really went into a recession at all. Our unemployment rate was projected to reach 7, 8, 9, or 10 percent, but it never even got to 6 percent.” House prices jumped 11.8 percent in the year through January, according to a Feb. 26 report by real-estate monitoring company RP Data-Rismark, whose figures are used by the central bank in its quarterly monetary policy statement. Today’s rate increase means households with a A$300,000 mortgage will be charged an extra A$50 a month, adding to the A$150 increase in monthly payments last quarter. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Pound Declines for Sixth Day on Prospect of Political Deadlock; Yen Drops

March 1, 2010

By Yasuhiko Seki and Ron Harui March 2 (Bloomberg) — The pound fell for a sixth day against the dollar amid concern that political uncertainties will hamper efforts to reduce the U.K.’s debt. The U.K. currency weakened against all 16 of its most- active counterparts after polls showed Britain may have its first minority government since 1974 and ahead of a report forecast to show that a recovery in consumer confidence stalled in February. The Australian dollar traded near the strongest in a week versus the greenback after the Reserve Bank of Australia raised its benchmark interest rate to 4 percent. “Concerns over politics and the debt situation in the U.K. are growing,” said Toshiya Yamauchi , manager of foreign- exchange margin trading at Ueda Harlow Ltd. in Tokyo. “If forthcoming data confirms the deterioration in sentiment, the pound may extend its decline.” The pound declined to $1.4928 as of 12:32 p.m. in Tokyo from $1.4991 in New York yesterday when it dropped to $1.4784, the lowest level since May 1. It was at 90.64 pence per euro from 90.47 yesterday after reaching 91.50, the weakest since Dec. 1. Sterling traded at 60.26 pence against the Australian dollar from 60.12 yesterday, when it reached 60.46, the weakest since March 1985. The U.K. currency yesterday had its biggest drop against the dollar since Feb. 2, 2009, as a poll showed the opposition Conservative Party has the smallest lead over the Labour Party in more than two years. Elections must be held by June. The pound has tumbled by 7.6 percent against the dollar and 2.3 percent versus the euro this year. U.K. Sentiment U.S. Prime Minister Gordon Brown is selling a record amount of debt to finance stimulus measures introduced to help the economy recover from its longest recession on record. In December, the government increased gilt sales planned for the fiscal year ending this month to 225.1 billion pounds ($337 billion), up from 220 billion pounds announced in April. “A hung parliament in the U.K. is clearly bearish because the market would not expect them to press ahead with fiscal measures,” said Thomas Harr, a senior currency strategist at Standard Chartered Plc in Singapore, in a Bloomberg News interview. “If this continues and we end up in a hung parliament, the sterling could fall more.” The Nationwide Building Society’s index of U.K. consumer sentiment stood at 73 in February, unchanged from the previous month, according to a Bloomberg News survey before the release of the survey from tomorrow. Australia’s currency traded at 90.06 U.S. cents from 90.09 cents after reaching 90.16 cents, the most since Feb. 23. The Reserve Bank of Australia increased its target rate to 4 percent from 3.75 percent, as predicted by economists in a Bloomberg survey. Plosser Comments The dollar rose for a second day against the yen after Philadelphia Federal Reserve Bank President Charles Plosser told the Wall Street Journal that the central bank should back away from its pledge to keep interest rates low for an “extended period.” “I don’t like that language,” Plosser said in an interview with the newspaper, referring to the “extended period” wording. “What is troubling about the words is that it ties our hands, or people believe that it ties our hands.” Plosser made similar remarks at a speech in Philadelphia last month. Fed presidents rotate in voting on monetary policy, with Plosser voting next year. “Hawkish comments triggered some buy-back of the dollar,” said Masahiro Ito , senior manager of foreign-exchange sales and marketing at Central Tanshi FX Co., a unit of Japan’s largest money broker. “If forthcoming data support his bullish view, the dollar may regain some momentum.” Yen Falls The yen also weakened as Asian stocks followed gains in the U.S. after consumer spending topped economists’ estimates. U.S. consumer spending rose 0.5 percent in January, Commerce Department figures showed yesterday. The median forecast was for an increase of 0.4 percent in a Bloomberg News survey. “Stocks in Asia are rising, taking their cue from gains in U.S. equities,” said Akane Vallery Uchida , a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. “This will likely be good for risk sentiment and will probably lead to selling of the yen.” The Standard & Poor’s 500 Index advanced 1 percent yesterday. The MSCI Asia Pacific Index of regional shares rose 0.6 percent today. To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net .

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Pound Drops on U.K. Political Risks; Aussie Rises Before RBA Rate Meeting

March 1, 2010

By Yasuhiko Seki and Ron Harui March 2 (Bloomberg) — The pound dropped for a sixth day versus the dollar, after falling below $1.50 for the first time in almost 10 months, amid concerns that political uncertainties will hamper efforts to reduce the U.K.’s debt. The British currency weakened after polls showed Britain may have its first minority government since 1974 and ahead of a report forecast to show that a recovery in consumer confidence stalled in February. The Australian dollar traded near the strongest in a week versus the greenback on expectations the Reserve Bank will raise its benchmark interest rate today. “Concerns over politics and the debt situation in the U.K. are growing,” said Toshiya Yamauchi , manager of foreign- exchange margin trading at Ueda Harlow Ltd. in Tokyo. “If forthcoming data confirms the deterioration in sentiment, the pound may extend its decline.” The pound was at $1.4948 as of 9:54 a.m. in Tokyo from $1.4991 in New York yesterday when it dropped to $1.4784, the lowest level since May 1. It was at 90.54 pence per euro from 90.47 pence yesterday after reaching 91.50, the weakest since Dec. 1. Sterling traded at 60.10 pence against the Australian dollar from 60.10 pence yesterday, when it reached 60.46 pence, the weakest since March 1985. Consumer Sentiment Sterling yesterday had its biggest drop against the dollar since Feb. 2, 2009, as a poll showed the opposition Conservative Party has the smallest lead over the Labour Party in more than two years. Elections must be held by June. The pound has tumbled by 7.3 percent against the dollar and 2.2 percent versus the euro this year. Prime Minister Gordon Brown is selling a record amount of debt to finance stimulus measures introduced to help the economy recover from its longest recession on record. In December, the government increased gilt sales planned for the fiscal year ending this month to 225.1 billion pounds ($337 billion), up from 220 billion pounds announced in April. The Nationwide Building Society’s index of U.K. consumer sentiment stood at 73 in February, unchanged from the previous month, according to a Bloomberg News survey before the release of the survey from tomorrow. Stocks Advance The difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with those on a gain — so-called net shorts — was 62,884 on Feb. 23, the most since Oct. 13, 2009, compared with net shorts of 56,079 a week earlier, figures from the Washington-based Commodity Futures Trading Commission showed. Australia’s currency traded at 89.88 U.S. cents from 90.09 cents after reaching 90.16 cents, the most since Feb. 23. There’s a 62 percent chance the Reserve Bank of Australia will raise its target rate to 4 percent, based on trading on the Sydney Futures Exchange. Fourteen of 19 economists in a Bloomberg survey forecast an increase. The yen weakened as Asian stocks followed gains in the U.S. after consumer spending topped economists’ estimates. U.S. consumer spending rose 0.5 percent in January, Commerce Department figures showed yesterday. The median forecast was for an increase of 0.4 percent in a Bloomberg News survey. “Stocks in Asia are rising, taking their cue from gains in U.S. equities,” said Akane Vallery Uchida , a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. “This will likely be good for risk sentiment and will probably lead to selling of the yen.” The Standard & Poor’s 500 Index advanced 1 percent yesterday. The MSCI Asia Pacific Index of regional shares rose 0.4 percent today and the Nikkei 225 Stock Average climbed 0.5 percent. To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net .

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Reserve Bank of India stresses reciprocity

February 23, 2010

Reserve Bank of India stresses reciprocity

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New Zealand House Prices Advance for Fourth Month, Led by Biggest Cities

February 7, 2010

By Tracy Withers Feb. 8 (Bloomberg) — New Zealand house prices climbed for a fourth month in January, fueled by increased demand for property in the nation’s largest cities as the economy emerges from a recession. Prices increased 4.4 percent from a year earlier, following a 2.8 percent annual gain in December, according to a Quotable Value New Zealand Ltd. index. Prices in the 17 largest cities rose 6.2 percent, the Wellington-based government valuation agency said in an e-mailed report. Further gains in house prices may be curbed by the prospect of Reserve Bank Governor Alan Bollard raising the benchmark interest rate from the middle of the year. Market activity in January was “patchy” and fewer people listed their homes for sale, said Glenda Whitehead, valuation manager at Quotable Value. “There are signs of increasing indecision in the market fuelled by uncertainty over interest rates, employment and which direction property prices are likely to move,” Whitehead said. New Zealand’s jobless rate rose to a 10-year high of 7.3 percent in the fourth quarter, damping consumer confidence. Average house prices rose 1.7 percent in January from December when they gained 2.9 percent, today’s report showed. A separate report prepared by the Real Estate Institute last month said that house prices fell for the first time in six months in December. The number of home-loan approvals in the three months ended Jan. 29 declined 11 percent from a year earlier, according to central bank figures published Feb. 3. To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net .

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Australia Waits for World to Catch Up as Stevens Pauses on Rate Increases

February 2, 2010

By Jacob Greber Feb. 3 (Bloomberg) — Australian central bank Governor Glenn Stevens ’s unexpected decision to keep borrowing costs unchanged gives his economy a chance to absorb a record series of rate increases and allow global counterparts to catch up. “Being the only man hiking is a real problem — if you’re that guy the higher exchange rate strangles parts of the economy,” said Matthew Johnson , an interest-rate strategist at UBS AG in Sydney. Policy makers kept the overnight cash rate target at 3.75 percent in Sydney yesterday, confounding the forecasts of all 20 economists surveyed by Bloomberg for a quarter-point move and driving the nation’s currency to its lowest level in six weeks. Last year’s 28 percent surge against the U.S. dollar, after Stevens became the world’s only central banker to raise borrowing costs three times, has eroded earnings at exporters including BlueScope Steel Ltd. “The Australian dollar was everyone’s favorite currency last year as investors went back into risk trades,” said Mansoor Mohi-uddin , Singapore-based chief currency strategist at UBS AG. “Now, because the central bank has clearly changed the short-term outlook, there will be some more profit-taking by investors who have been long the Australian dollar.” Last year’s Australian rate increases helped fuel gains in the nation’s currency as investors sought higher-yielding assets in so-called carry trades that Reserve Bank Assistant Governor Guy Debelle said late last year are “back in vogue.” Currency Plunges The nation’s currency fell yesterday to as low as 87.81 U.S. cents, the least since Dec. 23, from 89.24 cents just before the decision was released. It traded at 88.49 cents at 10:15 a.m. today in Sydney. Traders are betting there is only a 34 percent chance of a quarter-point move when policy makers meet on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 10:08 a.m. Prior to yesterday’s decision, chances stood at 100 percent. Keeping borrowing costs unchanged at the central bank’s first meeting since Dec. 1 allows policy makers to judge the impact on consumers and businesses of previous increases, Stevens said. The pause also comes amid signs that global credit conditions “remain difficult in the major countries as banks continue to face loan losses associated with the period of economic weakness,” he said. “Concerns regarding some sovereigns have increased.” Investors concerned that Greece’s budget deficit, the biggest in the European Union, will spread to other nations in the region has triggered a 5.1 percent slump in the euro against the yen and a 2.7 percent decline against the dollar this year. Global Rates Concerns about the pace of the global recovery have also increased speculation that policy makers in the U.S. and Europe aren’t likely to raise borrowing costs any time soon. Interest rates are “appropriate,” European Central Bank President Jean-Claude Trichet said on Jan. 14 after leaving the benchmark at a record low of 1 percent. The Federal Reserve restated its intention last week to keep interest rates near zero for an “extended period,” saying the pace of “economic recovery is likely to be moderate for a time.” By contrast, Australia’s economy shows signs of strengthening after skirting last year’s global recession, boosted by A$20 billion ($18 billion) in cash handouts to consumers from Prime Minister Kevin Rudd . ‘Time to Catch Up’ Employers added 135,700 jobs between September and December, the biggest four-month surge in hiring in more than three years, driving unemployment down to an eight-month low of 5.5 percent. The economy expanded in the three months through September for a third straight quarter and house prices surged 13.6 percent in 2009, recent reports showed. Stevens and his board “were worried about being on their own,” said Joshua Williamson , a senior economist at Citigroup Inc. in Sydney. The decision to keep rates unchanged “also gives some of the other central banks a chance to catch up, or at least signal that they’re moving towards raising rates.” About 35 percent of earnings at publicly traded Australian companies such as Foster’s Group Ltd., the world’s second- largest winemaker, and steelmaker BlueScope Steel, are affected by gains against the dollar, Chris Pidcock , a strategist at Goldman Sachs JBWere Pty., estimated in October. Increased borrowing costs and the “high” Australian dollar triggered a drop in business confidence in December to the lowest level in six months, a survey by National Australia Bank Ltd. showed yesterday. Borrowing Slows There are also signs Stevens’s rate increases in October, November and December are restraining the mortgage market. Borrowing for home buying fell to a five-year low last month, according to a report this week by Australian Finance Group Ltd., which says it accounts for more than 10 percent of the mortgage market. The group arranged A$1.55 billion of mortgages in January, 19 percent less than a year earlier and the lowest level for any month since 2005. Most mortgage rates in the economy have increased by about 1 percentage point since October, outpacing the central bank’s 75 basis point increase in the benchmark rate, Stevens said yesterday. Australian & New Zealand Bank Group Ltd. boosted its variable mortgage rate by 35 basis points after Stevens raised the overnight cash rate target by 25 basis points on Dec. 1. Commonwealth Bank of Australia raised its home-loan rate by 37 basis points and Westpac Banking Corp. moved by the largest amount, driving up its mortgage rate by 45 basis points. Mortgage Costs Westpac’s move means households with a A$300,000 mortgage are being charged an extra A$1,008 a year, instead of the A$576 that would have been imposed had the bank merely passed on the Reserve Bank’s increases. “Interest-rate rises are not good for consumers full stop,” Michael Luscombe , chief executive officer of Australia’s biggest retailer Woolworths Ltd., said in an interview last week. “I think 2010 is going to be a challenging year.” Households will “welcome this decision and businesses will welcome this decision,” Treasurer Wayne Swan told parliament in Canberra yesterday. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Asian Stocks, Metals Rise on U.S.; European Stocks, Aussie Dollar Decline

February 2, 2010

By Clyde Russell and Shani Raja Feb. 2 (Bloomberg) — Asian stocks climbed from a two-month low after a report showed U.S. manufacturing expanded more than estimated and as commodity prices advanced. The Australian dollar dropped after the central bank unexpectedly left interest rates unchanged. The MSCI Asia Pacific Index gained 0.9 percent to 117.27 as of 4:15 p.m. in Tokyo following a 1.4 percent increase in the Standard & Poor’s 500 Index yesterday in New York. S&P 500 futures fell 0.2 percent, while those for the Dow Jones Euro Stoxx 50 dropped 0.3 percent at 7:15 a.m. in London. The dollar traded near the highest level in almost seven months against the euro amid concern Greece will struggle to reduce its deficit. U.S. manufacturing expanded in January at the fastest pace since August 2004, boosting confidence that the economy is recovering from the worst recession since World War II. Australia’s central bank kept its benchmark interest rate unchanged, ending a streak of three consecutive increases, to gauge the strength of an economic recovery. “Markets overall were as oversold as they had been for some months and a bounce was expected,” Prasad Patkar , who helps manage $1.5 billion at Platypus Asset Management in Sydney. “The world is a markedly better place, in an economic sense, than it was 12 months ago so there is good reason to believe the market will stay bid.” Japan’s Nikkei 225 Stock Average advanced 1.6 percent to 10,371.09. Australia’s S&P/ASX 200 Index climbed 1.8 percent. Canon, BHP Rise Canon Inc., which gets 28 percent of revenue from the Americas, added 2.7 percent in Tokyo. BHP Billiton Ltd. , the world’s largest mining company, rose 3.2 percent in Sydney. Toyota Motor Corp. gained 4.5 percent after saying it will resume some production operations that were halted following an accelerator pedal problem in 2.3 million vehicles. The Institute for Supply Management’s factory index rose to 58.4, exceeding the highest estimate in a Bloomberg News survey of economists. Readings greater than 50 signal expansion. Incomes climbed 0.4 percent, also more than expected, according to the Commerce Department in Washington. The dollar strengthened to as much as $1.3933 versus the euro in Tokyo. The greenback reached $1.3853 yesterday in New York, the strongest level since July 8. The greenback fetched 90.74 yen from the 90.61 yen close in New York. The Japanese currency reversed its loss on the day against the euro, trading at 125.88 per euro from 126.24 yesterday when it hit 124.43 yen, the highest level since April 28. The European Union will issue a review of Greece’s budget- cutting plans tomorrow. The nation’s deficit program is “very ambitious and this will need to be implemented under difficult circumstances,” EU Economic and Monetary Affairs Commissioner Joaquin Almunia said in an interview yesterday in Brussels. Greece Contagion “European policy makers seem to be worried that Greece’s problems may spread,” said Yuji Saito , director of the foreign- exchange department at Calyon Bank in Tokyo. “This is putting a brake on any gains in the euro.” The so-called Aussie fell against all of its 16 most-traded counterparts after Reserve Bank Governor Glenn Stevens left the overnight cash rate target at 3.75 percent in Sydney. All 20 economists surveyed by Bloomberg News forecast a quarter-point boost. Futures traders estimated a 74 percent chance of an increase. The Australian currency weakened as much as 1.5 percent to 87.85 U.S. cents from 89.14 cents in New York. The decision suggests Stevens and his board may keep borrowing costs unchanged in coming months to gauge the economic impact of previous increases. Business confidence, particularly among retailing companies, fell in December to the lowest level in six months, a report showed today. Australian Pause “The decision will bring the currency back to a degree, but the Reserve Bank hasn’t gone away,” said Stephen Roberts , a senior economist at Nomura Australia Ltd. in Sydney. “This is purely a pause, certainly not a sign that they’re finished.” Crude oil extended gains in New York after rising the most in four weeks yesterday as the U.S. manufacturing data boosted optimism that fuel use in the world’s biggest energy-consuming country will gain. Oil for March delivery rose 23 cents to $74.66 a barrel in electronic trading on the New York Mercantile Exchange. “We can see that manufacturing is improving,” said Jonathan Barratt , managing director at Commodity Broking Services Pty in Sydney. “We now want to see that number backed up with good fundamentals in the inventory data.” Copper climbed from a 10-week low in Shanghai, as recent declines lured buyers from China, the world’s largest consumer. The May-delivery contract on the Shanghai Futures Exchange rose as much as 2.2 percent to 55,500 yuan ($8,129) a ton, after plunging to the lowest level since Nov. 19 yesterday. The cost of protecting Asian corporate and sovereign bonds from non-payment dropped, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 3.5 basis points to 111.5 basis points, Citigroup Inc. prices show. A decline would be the risk benchmark’s first since Jan. 25, when it fell 4.7 basis points, according to prices from CMA DataVision in New York. To contact the reporters for this story: Clyde Russell in Singapore at crussell7@bloomberg.net ; Shani Raja in Sydney at sraja4@bloomberg.net .

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Australia May Raise Rate to 4% as Employment Surge Stokes Price Pressures

February 1, 2010

By Jacob Greber and Dan Petrie Feb. 2 (Bloomberg) — Australia’s central bank may raise its benchmark interest rate by a quarter percentage point today for a record fourth straight meeting as the nation’s economic expansion fuels a surge in employment. Reserve Bank Governor Glenn Stevens will boost the overnight cash rate target to 4 percent, according to all 20 economists surveyed by Bloomberg. Futures traders estimate a 72 percent chance of an increase in the announcement scheduled for 2:30 p.m. in Sydney. The biggest jobs boom in more than three years, the largest increase in annual house prices since 2007 and reports showing inflation may accelerate in 2010 are increasing pressure on Stevens to continue leading the world in raising borrowing costs. Consumer confidence rose in January by the most in six months, a sign households weren’t deterred by his efforts to date. “The bank is planning to move the cash rate back to a ‘neutral’ target level of 4.5 percent by June at the latest,” said Bill Evans , chief economist at Westpac Banking Corp. in Sydney and a former analyst at the central bank and Treasury. “The economy is rebounding strongly from the downturn and there is less spare capacity than anticipated.” Stevens became the first central banker in the world to raise borrowing costs three times last year after Australia’s economy skirted the global recession, helped by A$20 billion ($18 billion) in cash handouts to consumers from Prime Minister Kevin Rudd and another A$22 billion in spending on roads, railways and schools. Rate Differences By contrast, officials in the U.S., the U.K. and Europe have kept their benchmark lending rates at historic lows this year. The rate gap has contributed to making the Australian dollar the top performer against its U.S. counterpart since the start of September among the most-traded currencies. Australia’s economy expanded in the three months through September for a third straight quarter, house prices surged 13.6 percent in 2009, and unemployment fell in December to an eight- month low of 5.5 percent, reports published since the bank’s last meeting in December show. Employers added 135,700 jobs from September through December as companies such as Chevron Corp. expand liquefied natural gas ventures to meet rising demand for energy, particularly in Asia. The economic recovery in China, Australia’s largest trading partner, has been “much quicker to date and prospects appear to be for good growth in 2010,” Stevens said on Dec. 1. China’s economy expanded 10.7 percent last quarter, the fastest pace since 2007. China Factor A quarter-point rate increase today “will be easily justified given strong Chinese growth, sticky core inflation, double-digit house-price gains” and falling unemployment, said Annette Beacher , an economist at TD Securities Ltd. in Singapore. The central bank’s so-called annual weighted-median gauge of core inflation rose 3.6 percent in the three months through December. The measure has held above the top of the bank’s target range of between 2 percent and 3 percent since the third quarter of 2007. While all the economists surveyed by Bloomberg forecast an increase today, financial markets are less certain. Traders are betting there is a 72 percent chance of a move, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:29 a.m. The chance of an increase stood at 76 percent on Jan. 28. Nouriel Roubini, the New York University professor who anticipated the financial crisis, said on Feb. 1 in Davos, Switzerland, that the U.S. growth outlook remains “very dismal,” and White House economic adviser Lawrence Summers said the economy is still mired in a “human recession.” Australia Different While such comments reflect concern that emergency measures to rescue banks and fight the global recession may be withdrawn too soon, they are “not at all appropriate for Australia,” said TD’s Beacher. “What goes down must eventually come up if the emergency has passed,” she said. There are signs Governor Stevens’s rate increases in October, November and December have begun restraining the mortgage market. Borrowing for home-buying fell to a five-year low last month, according to a report yesterday by Australian Finance Group Ltd., which says it accounts for more than 10 percent of the nation’s mortgage market. The group arranged A$1.55 billion of mortgages in January, 19 percent less than a year earlier and the lowest level for any month since 2005. Business confidence, particularly among retailing companies, fell in December to the lowest level in six months, a report by National Australia Bank Ltd. showed today. The bank’s sentiment index dropped 11 points to 8. Pre-Crisis Rate Interest rates in the economy have increased by about 1 percentage point relative to the cash rate over the past two years, meaning the current levels are consistent with a pre- crisis cash rate of “at least” 4.75 percent, Deputy Governor Ric Battellino said in a speech in December. Battellino said on Dec. 17 monetary policy is “now back in the normal range” after lenders raised business and home-loan rates by more than the central bank increased the overnight cash rate target. Australian & New Zealand Bank Group Ltd. boosted its variable mortgage rate by 35 basis points after Governor Stevens raised the overnight cash rate target by 25 basis points on Dec. 1. Commonwealth Bank of Australia raised its home-loan rate by 37 basis points and Westpac Banking Corp. moved by the largest amount, driving up its mortgage rate by 45 basis points. Westpac’s move means households with a A$300,000 mortgage are being charged an extra $1,008 a year, instead of the $576 that would have been imposed had the bank merely passed on the Reserve Bank’s increases. “Interest-rate rises are not good for consumers full stop,” Michael Luscombe , chief executive officer of Australia’s biggest retailer Woolworths Ltd., said in an interview on Jan. 28. “I think 2010 is going to be a challenging year.” To contact the reporters for this story: Jacob Greber in Sydney at jgreber@bloomberg.net ; Daniel Petrie in Sydney at dpetrie5@bloomberg.net

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Subbarao Seeks to Assure Investors on Prices, Aid India’s Economic Rebound

January 30, 2010

By Cherian Thomas Jan. 30 (Bloomberg) — India’s central bank Governor Duvvuri Subbarao sought to assure investors that he will restrain inflation, while refraining from raising interest rates to support a rebound in Asia’s third-largest economy. The Reserve Bank of India yesterday left benchmark rates unchanged and instead boosted the ratio of deposits lenders must hold in reserve by more than forecast, to 5.75 percent. The step is part of a gradual tightening of monetary policy that will lead to higher borrowing costs in coming months, said Rajeev Malik , a regional economist at Macquarie Group Ltd. The goal is to secure a recovery in economic growth toward 8 percent this year while containing a surge in inflation that would impoverish households and drive up longer-term bond yields. Subbarao, 60, is emulating a course taken across the region, with nations from China to the Philippines taking steps toward higher borrowing costs without rushing to raise rates. “The Reserve Bank of India has embarked on a handle-with- care monetary exit,” said Singapore-based Malik. “While inflation has become more important, it has not taken its eyes off growth dynamics.” Malik expects the central bank to raise interest rates by between 1 and 1.5 percentage points over the next year, starting in either March or April. India’s generic 10-year government bond yields reached 7.71 percent on Jan. 13, the highest level since November 2008, and closed at 7.58 percent yesterday in Mumbai. ‘Keeping a Vigil’ “Bond yields haven’t reacted much and are likely to remain stable,” said Jayesh Mehta , country treasurer and head of fixed income at Bank of America Corp. in India. “The RBI has been keeping a vigil on inflation and had announced its intentions several months back.” India’s benchmark stock index gained 0.3 percent yesterday, reversing earlier losses, after the central bank predicted faster growth. The rupee gained 0.4 percent to 46.18 against the dollar from 46.36. Subbarao expects India’s economy to grow 7.5 percent in the year to March 31 from the 6 percent forecast earlier as demand for manufactured goods and services rise. He also raised the bank’s inflation forecast to 8.5 percent by March 31 from 6.5 percent. As a result, the cash reserve ratio was raised from 5 percent while the benchmark reverse repurchase rate was kept unchanged at 3.25 percent and the repurchase rate at 4.75 percent yesterday. Currency Gains Analysts anticipate currency gains as strengthening economies force central banks to act. The rupee may gain almost 8 percent by year-end to 43 per dollar, according to the median forecast in Bloomberg survey. China’s yuan and Malaysia’s ringgit are estimated to advance 3.7 percent. China, Malaysia and the Philippines moved closer to raising interest rates in January. In China, the central bank ordered some banks to pare lending, raised the ratio for deposits banks must set aside as reserves and guided bill yields higher this month after loan growth surged. Malaysia kept borrowing costs unchanged on Jan. 26, while warning that rates cannot be kept “too low” for too long because of the need to prevent a build-up of “financial imbalances.” The Philippines increased its so-called rediscounting rate, one of the interest rates it charges lenders for borrowing money from the central bank. Robust Growth “The growth in emerging-market economies such as China and India is expected to be robust,” Subbarao said yesterday. He said India could sustain 7.5 percent growth in the next financial year starting April 1. The International Monetary Fund on Jan. 26 boosted its 2010 gross domestic product growth projection for India to 7.7 percent from the 6.4 percent forecast in October. India’s growth prospects are luring investments. Bridgestone Corp. said Jan. 29 that a subsidiary in India will begin production of radial tires for buses and trucks in the first half of 2011 to tap growing demand in the country. The Tokyo-based company will invest 3.3 billion yen ($36 million), for daily production of 400 units, it said. Cisco Systems Inc. Chief Executive Officer John Chambers told CNBC in Davos Jan. 29 that he would be “not surprised” if China and India grew between 7 percent and 10 percent in 2010. Subbarao said his objective is to “anchor” inflation expectations without hurting growth. “The central bank has to balance growth versus inflation because in a country like India, inflation is sometimes more important than growth,” said Anil Singhvi , vice chairman of Reliance Natural Resources Ltd., a unit of India’s third-largest utility. Inflation is politically sensitive in India as it hurts the poor the most. The Food & Agriculture Organization says 231 million people in the country are undernourished, more than in Sub-Saharan Africa. Prime Minister Manmohan Singh’s government is under pressure to tame inflation after opposition parties stepped up their criticism of his administration for failing to curb price gains. To contact the reporter on the story: Cherian Thomas in Mumbai at cthomas1@bloomberg.net .

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India Raises Reserve Ratio More Than Forecast, Predicting Faster Inflation

January 29, 2010

By Cherian Thomas Jan. 29 (Bloomberg) — The Reserve Bank of India told lenders to set aside more deposits as reserves than economists predicted after raising its growth and inflation forecasts. Stocks and bonds fell. Governor Duvvuri Subbarao increased the cash reserve ratio to 5.75 percent from 5 percent, exceeding the median forecast for a half-point move in a Bloomberg News survey, an RBI statement showed in Mumbai today. The bank kept benchmark interest rates unchanged. The decision is India’s biggest step yet toward raising borrowing costs as inflation and asset-bubble concerns reverberate across Asia. China, Malaysia and the Philippines moved closer toward raising rates this month and Australia and Vietnam have already done so, spurring a sell-off in stocks and bolstering the outlook for currency gains in the region. “The policy is indicating a sequential step towards monetary tightening in India,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai. “The bank may raise policy rates before the next scheduled meeting,” on April 20. India’s benchmark stock index extended its drop, bond yields rose and the rupee weakened after the report. The Sensitive stock index fell 1.2 percent to 16,105.75, while the yield on 10-year government bonds increased to 7.59 percent from 7.55 percent at 11:20 p.m. in Mumbai. The rupee weakened to 46.39 against the dollar from 46.36 before the report. Gaining Momentum Governor Duvvuri Subbarao said India’s economic growth could “gain momentum” over the next year and “reinforce” inflationary pressures. The central bank raised its inflation forecast to 8.5 percent by March 31 from 6.5 percent. “The message being sent across is that stern steps will be taken going forward to contain inflation,” said Killol Pandya, who oversees the equivalent of $152 million in Indian debt at Shinsei Asset Management India Pvt. in Mumbai. “There are indications the economy is turning around.” In China, the central bank ordered some banks to pare lending, raised the ratio for deposits banks must set aside as reserves and guided bill yields higher this month after loan growth surged. Malaysia kept borrowing costs unchanged on Jan. 26, while warning that rates cannot be kept “too low” for too long because of the need to prevent a build-up of “financial imbalances.” The Philippines increased its so-called rediscounting rate, one of the interest rates it charges lenders for borrowing money from the central bank, as it began unwinding stimulus measures. Equities Retreat Equities have retreated on concern that the withdrawal of stimulus measures will slow a rebound in corporate earnings. The MSCI Asia Pacific index has lost 7.3 percent in the past two weeks. Analysts anticipate currency gains as strengthening economies force central banks to act. The rupee may gain almost 8 percent by year-end to 43 per dollar, according to the median forecast in Bloomberg survey. China’s yuan and Malaysia’s ringgit are estimated to advance 3.7 percent. The Reserve Bank estimates India’s $1.2 trillion economy, Asia’s third largest, will expand 7.5 percent in the year ending March 31, more than its October forecast of 6 percent “with an upward bias,” Subbarao said in the statement today. The bank left its benchmark reverse repurchase rate unchanged at 3.25 percent and the repurchase rate at 4.75 percent, today’s statement said. The increase in cash reserves will drain 360 billion rupees ($7.8 billion) from the banking system in two stages, on Feb. 13 and Feb. 27. Exacerbate Inflation “As growth accelerates and the output gap closes, excess liquidity, if allowed to persist, may exacerbate inflation expectations,” Subbarao said in the statement. “Though the inflationary pressures stem predominantly from the supply side, the consolidating recovery increases the risks of these spilling over into a wider inflationary process.” India’s benchmark wholesale-price inflation accelerated to 7.3 percent in December, the fastest pace since November 2008. Food accounted for 80 percent of December’s inflation reading, government data showed, as deficient rains last year hurt output of rice, wheat and sugar. Subbarao’s move is aimed at checking manufacturing inflation that surged to 5.2 percent in December from 1.6 percent in October. Industrial production rose 11.7 percent in November, the fastest pace in two years, as sales at companies including Hero Honda Motors Ltd. surged. Hero Honda, the nation’s biggest motorcycle maker, reported a better-than-estimated 79 percent increase in third- quarter net income after sales climbed. Food Inflation “Tighter monetary policy will have no impact on inflation as it is largely a supply-side-driven phenomenon,” Harsh Pati Singhania , president of the Federation of Indian Chambers of Commerce and Industry in New Delhi, said before the report. “Interest rates should not be increased.” Subbarao said there have been “some signs” of demand pressures on inflation and that he expects the current growth rate of 7.5 percent to continue in the next financial year starting April 1. To ease supply constraints, the government on Jan. 13 announced plans to sell as much as 3 million metric tons of wheat and rice in the open market until March and permit duty- free imports of white sugar until Dec. 31 to increase supplies. Prime Minister Manmohan Singh ’s government is under pressure to tame inflation as opposition parties stepped up their criticism for failing to curb prices. Inflation is politically sensitive in India, where the World Bank estimates almost three-quarters of the nation’s 1.2 billion people live on less than $2 a day. Subbarao said the withdrawal of monetary accommodation can’t be “effective” in controlling inflation unless the fiscal stimulus is also rolled-back in a coordinated manner. He said government borrowing must be cut to contain inflation and to meet credit demand of companies. To contact the reporter on this story: Cherian Thomas in Mumbai at cthomas1@bloomberg.net .

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New Zealand Home Prices Fall for First Time in Six Months as Sales Decline

January 17, 2010

By Tracy Withers Jan. 18 (Bloomberg) — New Zealand house prices fell for the first time in six months in December as the number of properties sold declined for a third month. Prices fell 0.9 percent from November, the Auckland-based Real Estate Institute of New Zealand Inc. said today in an e- mailed statement, citing an index. The number of properties sold dropped to 4,957 from 6,056 in November. New Zealand lenders have been raising interest rates on fixed-term home loans as their funding costs increase, curbing demand for property. Mortgage rates are rising even as Reserve Bank Governor Alan Bollard keeps the official cash rate at a record-low 2.5 percent. House sales slumped in 2008 amid a deepening recession, and only began rising on an annual basis in March last year. Sales in December increased 15 percent from a year earlier. The median time to sell a house was unchanged from November at 33 days, and fell from 45 days in December last year. To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net .

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Reserve Bank income and expense data and transfers to the Treasury for 2009

January 12, 2010

Reserve Bank income and expense data and transfers to the Treasury for 2009

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