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New Zealand Economy Expands a Slower-Than-Forecast 0.2%; Currency Declines

December 22, 2009

By Tracy Withers Dec. 23 (Bloomberg) — New Zealand’s economy grew less than economists predicted in the third quarter as construction, business investment and manufacturing dropped. Gross domestic product rose 0.2 percent from the previous three months, Statistics New Zealand said in Wellington today. The median estimate in a Bloomberg survey of 12 economists was for GDP to increase 0.4 percent following a revised 0.2 percent gain in the second quarter. The New Zealand dollar extended declines as the weaker-than-expected expansion damped speculation the central bank will need to raise borrowing costs early next year. Reserve Bank Governor Alan Bollard , who forecast third-quarter growth of 0.4 percent, said on Dec. 10 the benchmark interest rate needs to stay at a record-low 2.5 percent until mid-2010 to support growth. “Pockets of strength have been offset by continued weakness in other sectors,” Nick Tuffley , chief economist at ASB Bank Ltd. in Auckland, said ahead of the report. “It would take some extraordinarily strong data to shock the Reserve Bank into hiking earlier.” New Zealand’s dollar dropped to 69.96 U.S. cents at 11 a.m. in Wellington from 70.20 cents before the report was released and 70.54 cents yesterday. The currency had climbed 12 percent against the U.S. dollar the past six months and the NZX 50 stock index gained 14 percent on signs of a pickup in the economy. Global Stimulus Central bankers around the world are assessing when to remove stimulus and emergency aid as the global economy recovers and financial markets stabilize. Australia and Norway have started raising borrowing costs and the U.S. Federal Reserve has committed to scale down buying of mortgage-backed debt. Bollard said on Dec. 10 there is “considerable uncertainty” about the durability of New Zealand’s expansion because business investment and consumer spending are still subdued and the local currency’s appreciation has limited the scope of exports to contribute to the recovery. Warehouse Group Ltd. , the nation’s biggest discount retailer, last month said sales were below expectations in the three months ended Nov. 1. Finance Minister Bill English on Dec. 15 said increased business confidence positions the economy well for a rebound, though it has yet to translate into new jobs or investment. New Zealand’s unemployment rate rose to a nine-year high of 6.5 percent in the third quarter. Six of nine economists surveyed by Bloomberg News this month expected Bollard will increase interest rates in March or April, with the remaining predicting a June move. Annual Contraction The economy shrank 1.3 percent in the third quarter from a year earlier, compared with a 1.2 percent contraction expected by economists in a Bloomberg survey. The central bank forecasts the economy will contract 1.4 percent this year before growing 3 percent in 2010. Household spending , which makes up 60 percent of the economy, rose 0.8 percent in the third quarter, today’s report showed. Sales of cars, home appliances and other so-called durable goods gained 2 percent and spending on services also increased, led by travel. Purchases of food and non-durable items fell. Output from goods-producing industries slumped amid a 4.4 percent decline in construction. Manufacturing fell 1.9 percent led by output from meat plants. Exports Unchanged Exports of goods and services were unchanged in the third quarter as increased spending by tourists offset a fall in commodity exports including meat and seafood. Imports rose 0.7 percent, buoyed by vehicles and spending by citizens traveling overseas. Capital equipment purchases fell. Business investment fell 0.9 percent, the fifth straight decline, as companies spent less on plant and machinery. Investment in residential building fell 5 percent. Inventories declined. In contrast, increased activity in real estate services, health and communications contributed to GDP in the third quarter. Consumer sentiment rose to a 22-month high in October, according to an index compiled by ANZ National and Roy Morgan Research. House prices climbed 7.9 percent in September from a three-year low in January and home sales surged 44 percent, according to Real Estate Institute figures. Immigration is at a five-year high. Output from primary industries surged 3.9 percent in the quarter, led by logging, fishing, oil extraction and exploration. Farm output rose 0.9 percent. The final production well at OMV AG’s Maari oil field was connected in August, boosting output beyond original forecasts, the company said on Aug. 21. The GDP deflator, a measure of prices, rose 2 percent in the year ended Sept. 30. To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net .

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New Zealand’s Economy Expanded Slower-Than-Estimated 0.2%; Currency Falls

December 22, 2009

By Tracy Withers Dec. 23 (Bloomberg) — New Zealand’s economy grew less than economists predicted in the third quarter as construction, business investment and manufacturing dropped. Gross domestic product rose 0.2 percent from the previous three months, Statistics New Zealand said in Wellington today. The median estimate in a Bloomberg survey of 12 economists was for GDP to increase 0.4 percent following a revised 0.2 percent gain in the second quarter. The New Zealand dollar extended declines as the weaker-than-expected expansion damped speculation the central bank will need to raise borrowing costs early next year. Reserve Bank Governor Alan Bollard , who forecast third-quarter growth of 0.4 percent, said on Dec. 10 the benchmark interest rate needs to stay at a record-low 2.5 percent until mid-2010 to support growth. “Pockets of strength have been offset by continued weakness in other sectors,” Nick Tuffley , chief economist at ASB Bank Ltd. in Auckland, said ahead of the report. “It would take some extraordinarily strong data to shock the Reserve Bank into hiking earlier.” New Zealand’s dollar dropped to 69.96 U.S. cents at 11 a.m. in Wellington from 70.20 cents before the report was released and 70.54 cents yesterday. The currency had climbed 12 percent against the U.S. dollar the past six months and the NZX 50 stock index gained 14 percent on signs of a pickup in the economy. Global Stimulus Central bankers around the world are assessing when to remove stimulus and emergency aid as the global economy recovers and financial markets stabilize. Australia and Norway have started raising borrowing costs and the U.S. Federal Reserve has committed to scale down buying of mortgage-backed debt. Bollard said on Dec. 10 there is “considerable uncertainty” about the durability of New Zealand’s expansion because business investment and consumer spending are still subdued and the local currency’s appreciation has limited the scope of exports to contribute to the recovery. Warehouse Group Ltd. , the nation’s biggest discount retailer, last month said sales were below expectations in the three months ended Nov. 1. Finance Minister Bill English on Dec. 15 said increased business confidence positions the economy well for a rebound, though it has yet to translate into new jobs or investment. New Zealand’s unemployment rate rose to a nine-year high of 6.5 percent in the third quarter. Six of nine economists surveyed by Bloomberg News this month expected Bollard will increase interest rates in March or April, with the remaining predicting a June move. Annual Contraction The economy shrank 1.3 percent in the third quarter from a year earlier, compared with a 1.2 percent contraction expected by economists in a Bloomberg survey. The central bank forecasts the economy will contract 1.4 percent this year before growing 3 percent in 2010. Household spending , which makes up 60 percent of the economy, rose 0.8 percent in the third quarter, today’s report showed. Sales of cars, home appliances and other so-called durable goods gained 2 percent and spending on services also increased, led by travel. Purchases of food and non-durable items fell. Output from goods-producing industries slumped amid a 4.4 percent decline in construction. Manufacturing fell 1.9 percent led by output from meat plants. Exports Unchanged Exports of goods and services were unchanged in the third quarter as increased spending by tourists offset a fall in commodity exports including meat and seafood. Imports rose 0.7 percent, buoyed by vehicles and spending by citizens traveling overseas. Capital equipment purchases fell. Business investment fell 0.9 percent, the fifth straight decline, as companies spent less on plant and machinery. Investment in residential building fell 5 percent. Inventories declined. In contrast, increased activity in real estate services, health and communications contributed to GDP in the third quarter. Consumer sentiment rose to a 22-month high in October, according to an index compiled by ANZ National and Roy Morgan Research. House prices climbed 7.9 percent in September from a three-year low in January and home sales surged 44 percent, according to Real Estate Institute figures. Immigration is at a five-year high. Output from primary industries surged 3.9 percent in the quarter, led by logging, fishing, oil extraction and exploration. Farm output rose 0.9 percent. The final production well at OMV AG’s Maari oil field was connected in August, boosting output beyond original forecasts, the company said on Aug. 21. The GDP deflator, a measure of prices, rose 2 percent in the year ended Sept. 30. To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net .

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Australia Interest Rates Back to `Normal,’ Battellino Says; Currency Falls

December 15, 2009

By Tracy Withers Dec. 16 (Bloomberg) — Australia’s monetary policy is “now back in the normal range,” after lenders raised business and home-loan rates by more than the central bank has increased the overnight cash rate target, Deputy Governor Ric Battellino said. The nation’s currency and bond yields fell after Battellino told a conference in Sydney that interest rates being paid by borrowers are now “above their previous cyclical lows,” making it “reasonable to conclude that the overall stance of monetary policy is now back in the normal range.” Traders slashed bets that the central bank will add to a record three interest rate rises between October and this month, which took the benchmark rate to 3.75 percent from a half- century low of 3 percent. Three of Australia’s four largest banks increased their borrowing costs by more than the central bank’s latest move, drawing criticism from Treasurer Wayne Swan . With the economy improving, the justification for wider margins on bank loans is becoming less compelling, Battellino said. Australia’s economy expanded in the three months through September for a third straight quarter, rising 0.2 percent from the previous three months, the Bureau of Statistics said today. The Australian dollar fell to 90.19 U.S. cents as of 12:05 p.m. from 90.44 before the speech, the biggest decline against the U.S. dollar today among the 16 most-traded currencies. The yield on the one-year note fell 14 basis points, or 0.14 percentage point, to 4.09 percent, the biggest decline since Nov. 3, according to Bloomberg data. Rate Bets Investors are betting there is now only a 32 percent chance of a quarter-point increase in the benchmark lending rate to 4 percent at the central bank’s next meeting on Feb. 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 12:06 p.m. Just two days ago, traders saw a 78 percent chance of another increase. Westpac Banking Corp. , Australia and New Zealand Banking Group and Commonwealth Bank of Australia this month raised their standard variable home loan rates by more than the central bank, citing higher funding costs. Interest rates in the economy have increased by about 1 percentage point relative to the cash rate over the past couple of years, meaning today’s levels are consistent with a pre- crisis cash rate of “at least” 4.75 percent, Battellino said. “The interest rates that matter in the economy, the rates on housing and business loans and the rates on deposits and debt securities, have all risen relative to the cash rate,” Battellino said. “The Reserve Bank has taken these changing relativities into account in its monetary policy decisions.” Funding Costs Liquidity dried up during the crisis, making it more expensive for banks to borrow the funds required to write loans. While Australia’s economy has started to recover, Westpac Chief Executive Officer Gail Kelly said last week that funding costs may never drop to pre-crisis levels. Westpac raised mortgage rates by almost two times the 25 basis-point increase in the Reserve Bank of Australia’s benchmark interest rate on Dec. 1. Treasurer Swan predicted a “backlash” by customers, and the bank was labeled a “scrooge” by the Daily Telegraph newspaper. Westpac Chairman Ted Evans today defended the rate rises. “With interest rates now clearly on the rise again, both at home and abroad, there are limits to how long we could continue to absorb these costs without weakening our bank, the Australian financial system and, hence, the Australian economy,” he said in a speech at the bank’s shareholders meeting in Melbourne. Increased Competition Increased competition by banks for deposits has added substantially to their costs of funds, Battellino said. Deposits account for 43 percent of funding, domestic capital markets provide 19 percent, and foreign markets 28 percent, he said. The cost of funding from deposits, relative to the cash rate, has increased by 1.47 percentage points since July 2007, he said. The cost of new long-term debt has risen by 1.73 points. Bank margins are now “a little wider” than at the start of the crisis and should “level out” amid competition, Battellino said. “If interest rates in the economy are rising relative to the cash rate, there is less need for the cash rate to rise,” he said. To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net .

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Hale "Bonddad" Stewart: Why the "Audit the Fed" Movement Is Dead Wrong

December 11, 2009

From Bloomberg: For U.S. Representative Ron Paul , the ninth time may be the charm. After fighting for decades to increase scrutiny of the Federal Reserve or abolish it, the Texas Republican’s proposal requiring audits of the central bank’s interest-rate decisions is getting traction. The long-shot 2008 presidential candidate whose anti-tax, anti-government politics struck a chord with a swath of voters is again channeling public frustration with big government, bailouts and rising federal debt. And as Paul trains his sights on his favorite villain, the Fed, many in Congress are listening. This is a classic example of Congress demonstrating it is filled with idiots on both sides of the aisle. First, all of the Fed’s financial information is already online. If you want to find out about the Fed’s overall position, click on the above line. In addition, the Fed has a financial audit every year: The Board of Governors orders an annual external audit of the financial statements of the Board and the Reserve Banks. The current independent auditor is Deloitte and Touche. Each Reserve Bank publishes its audited financial statements, and the Board of Governors publishes the audited combined Reserve Bank financial statements and the Board’s financial statements in its annual report to Congress. The Reserve Banks and the Board comply voluntarily with the internal control requirements of the Sarbanes-Oxley Act. The external auditors also perform an evaluation of internal controls over financial reporting. So — we already have an audit every year. Why do we need another one? There are two answers to that question. The first is downright scary: the Texas Republican’s proposal requiring audits of the central bank’s interest-rate decisions is getting traction. The absolute last thing we need is for anyone to second guess the Fed’s interest rate decisions. That would make the country’s interest rates the whim of politicians. What would happen is easy to predict. Any attempt to raise rates would be stopped cold because someone would object. They would argue “that will hurt one of my constituents.” And we’d be left with low rates until inflation destroyed the economy. The second is people want “transparency” for all the Fed’s transactions. This would also be a mistake of epic proportions. Currently — and for the entire history of the Federal Reserve — it has engaged in “open market operations.” In other words, it has purchased various securities at various times in order to implement monetary policy. This is what all central banks do to carry out their mandate. And again — the Fed has done this since they were formed; it is standard procedure. Making these trades transparent would tell all of Wall Street exactly what security the Fed is buying. Congratulations — you have driven up the cost of performing monetary policy. Brilliant. The audit the Fed crowd has gotten completely out of hand. If their proposals are implemented the US economy will be crippled to the point of economic deadlock. If you thought the economic fallout in 2008 was extreme — you ain’t seen nothin’ yet.

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Yen Weakens on Signs of Global Recovery, Easing Risk Aversion; Euro Gains

December 9, 2009

By Yasuhiko Seki Dec. 10 (Bloomberg) — The yen fell, snapping three days of gains against the euro, as signs the global recovery is gaining momentum revived demand for higher-yielding assets. The 16-nation euro rose for a second day against the dollar before reports today that economists said will show industrial production in France and Italy increased. The Australian dollar gained after a report showed the unemployment rate unexpectedly declined in November. New Zealand’s dollar advanced as Reserve Bank Governor Alan Bollard said he expects to begin raising interest rates in the middle of next year. “As long as the global economy is on the mend, investors will keep shifting to higher-yielding currencies,” said Toshiya Yamauchi , manager of the foreign-exchange margin-trading department at Ueda Harlow Ltd. in Tokyo. “Funding currencies such as the yen and the dollar will remain under pressure unless the overall picture of the global economy changes.” The yen declined to 129.95 per euro as of 9:41 a.m. in Tokyo from 129.39 yesterday in New York. The euro rose to $1.4755 from $1.4726. Japan’s currency bought 88.06 per dollar from 87.87. The Australian dollar climbed to 91.62 U.S. cents from 91.08 cents before the jobs report and 90.86 cents yesterday. New Zealand’s dollar rose to 72.57 U.S. cents from 71.89 cents yesterday, when it jumped 1.7 percent. — Editors: Nicholas Reynolds , Rocky Swift To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net .

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Australian Central Bank May Raise Key Rate for Record Third Month to 3.75%

November 30, 2009

By Jacob Greber and Dan Petrie Dec. 1 (Bloomberg) — Australia’s central bank will raise its benchmark interest rate by a quarter percentage point today for a record third straight month as evidence mounts that the nation’s economy is strengthening, economists say. Reserve Bank Governor Glenn Stevens will boost the overnight cash rate target to 3.75 percent at 2:30 p.m. in Sydney, according to 19 of 21 economists surveyed by Bloomberg. Futures traders are not as convinced, betting there is only a 56 percent chance of an increase. Central bank policy makers say the economy has entered a “new upswing” that will last several years, boosted by rising consumer confidence and China’s demand for resources such as iron ore. Still, some analysts say Stevens may delay an increase until the bank’s next meeting in February to gauge whether the recovery will slow as the government cuts stimulus spending. “We are tipping a rate hike, but not with a high degree of certainty,” said Craig James , a senior economist at Commonwealth Bank of Australia. “Cash rates remain at historically low levels and our economy is continuing to improve. But on the other side of the equation, a slump in manufacturing investment would be weighing on board members’ minds.” Investors have reduced bets on a quarter-point rate increase today to 56 percent, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 3:26 p.m. yesterday. On Nov. 13, chances of such a move stood at 80 percent. ‘Open Question’ The pace of interest-rate increases is an “open question” as policy makers balance the risk of keeping borrowing costs too low against an economy that may cool as government stimulus abates, central bank officials said in minutes of their November meeting, when they became the first central bankers in the world to raise borrowing costs twice since the height of the global crisis. Business and consumer confidence, which helped Australia skirt the global recession, “could prove fragile,” and growth may slow as the effects of more than A$20 billion ($18.4 billion) in cash handouts from Prime Minister Kevin Rudd’s government and his A$22 billion of spending on roads, schools and hospitals fades next year, central bank policy makers said at their Nov. 3 meeting. “It seems very likely that the Reserve Bank will indeed remain on hold,” said Macquarie Group Ltd.’s Rory Robertson , one of only two economists surveyed by Bloomberg to forecast Governor Stevens’s decision to raise borrowing costs in October. Dubai Threat “A pause is consistent with strong hints from the bank both before and after the November hike, the mixed nature of economic data over the past month and the current downshift in global risk markets after Dubai” World said on Nov. 25 it was seeking to delay loan repayments, Robertson said. Reports published since the bank’s last meeting showed Australia’s unemployment rate climbed in October to 5.8 percent from 5.7 percent, company profits fell in the three months through Sept. 30 for a fourth straight quarter, and retail sales unexpectedly dropped in September. Business investment also unexpectedly fell 3.9 percent in the third quarter, led by a record 13.4 percent slump in spending by manufacturers. Governor Stevens raised the overnight cash rate target by a quarter percentage point in October and this month. By contrast, officials in the U.S., U.K. and Europe have kept their benchmark lending rates at historic lows this year. Currency Rising Speculation Stevens will continue to lead the world in raising rates has stoked this year’s 31 percent surge in the nation’s currency. The Australian dollar traded at 91.87 U.S. cents at 3:55 p.m. in Sydney yesterday. “It is now 18 years since Australia has experienced a negative in year-ended gross domestic product growth, a very prolonged expansion,” central bank Deputy Governor Ric Battellino said last week. “It is reasonable to assume that we will see this growth extended for a few more years yet.” The economy expanded 1 percent in the first half of the year and is forecast by the Reserve Bank to grow 3.25 percent next year and in 2011. Third-quarter gross domestic product figures will be published on Dec. 16. House prices rose 1.4 percent in October, taking this year’s increase to 10 percent, real-estate monitoring company RP Data-Rismark said yesterday. “The strength in housing prices adds strongly to the case for tighter monetary policy,” said Alex Joiner , an economist at Australia & New Zealand Banking Group Ltd. in Melbourne. Coal, Gas Stevens is also under pressure to raise borrowing costs as a rebound in demand for commodities such as iron ore, coal and gas prompts energy companies to increase spending. BHP Billiton Ltd. and Rio Tinto Group boosted iron-ore production to a record in the third quarter to satisfy Chinese demand for steel, which helped exports surge 5 percent in September. The nation’s single biggest investment project, the A$43 billion Gorgon natural-gas venture involving Chevron Corp., Exxon Mobil Corp. and Royal Dutch Shell Plc, will create as many as 10,000 jobs when construction starts early next year, Chevron said on Sept. 14. 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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‘Lazy’ balance sheets now ‘de rigueur’

November 9, 2009

The Reserve Bank says Australian companies are returning to more conservative balance sheets, and reversing the debt boom of the Noughties. In a speech on ‘reconnecting corporate Australia with frozen credit markets’, the bank’s head of domestic markets,

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Australia Raises Key Rate by Quarter Point to 3.5%; Currency Pares Gains

November 3, 2009

By Jacob Greber Nov. 3 (Bloomberg) — Australia raised its benchmark interest rate by a quarter percentage point for the second straight month, becoming the only nation to increase borrowing costs twice this year as the global economy recovers. Reserve Bank Governor Glenn Stevens lifted the overnight cash rate target to 3.5 percent in Sydney today, as forecast by 18 of 22 economists surveyed by Bloomberg News. The rest expected a half-point move. Australia’s dollar and bond yields fell as traders reduced bets on an increase in December after Stevens said higher rates would come “gradually.” Rising consumer confidence and Chinese demand for iron ore and coal will stoke economic growth while the currency’s 29 percent gain this year may hurt exporters and curb inflation, he said. “Today’s move strikes a nice balance — it edges the cash rate back to more normal levels without threatening the economic recovery,” said Craig James , a senior economist at Commonwealth Bank of Australia. “It is far from certain that rates will rise again in December.” The Australian dollar fell to 90.34 U.S. cents at 5:08 p.m. in Sydney from 90.88 cents just before the decision was released. The two-year government bond yield dropped 19 basis points to 4.54 percent. A basis point is 0.01 percentage point. Investors pared bets on whether Stevens will increase the key rate by a quarter point on Dec. 1, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. There is a 52 percent chance of such a move, the futures showed at 4:28 p.m. Prior to today’s announcement expectations were at 96 percent. Changed Outlook Treasurer Wayne Swan said yesterday the economy will expand faster than he previously forecast, growing 1.5 percent in the 12 months to June 30, 2010. In May, he forecast a 0.5 percent contraction. GDP will accelerate to 2.75 percent the following fiscal year, he said yesterday. The economy grew 1 percent in the first six months of this year. “The adjustments at the October and November meetings will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead,” Stevens said today. “The board noted that the rise in the exchange rate is likely to constrain output in the tradeables sector and dampen price pressures,” he said. Investors, hungry for China’s economic growth, have been betting the Australian dollar is headed toward parity with the U.S. currency for the first time, buying into the world’s biggest exporter of iron ore used in making steel. Hedge Funds Citigroup Inc., Calyon, Barclays Capital and National Australia Bank Ltd. forecast it will trade at 1 U.S. dollar next year, implying an additional 11 percent gain. Hedge funds and other large traders have more bets than at any time since July 15, 2008, that the rally will continue, data from the Washington-based Commodity Futures Trading Commission show. Stevens has tempered his comments on the pace of rate increases and their effect on the currency, after last month signaling he was prepared to keep raising borrowing costs and tolerate further appreciation in the local dollar, the best- performing in the past 12 months of 171 currencies tracked by Bloomberg, as it “may help contain inflation.” The central bank’s measure of core inflation, the so-called weighted median index of consumer prices, rose 3.8 percent in the third quarter from a year earlier, holding above the top of Governor Stevens’s target range of between 2 percent and 3 percent for a ninth straight quarter, a report showed on Oct. 28. Global Rates Stevens also raised the rate by a quarter point on Oct. 6. The only other countries to increase borrowing costs this year are Israel and Norway. By contrast, the U.S. Federal Reserve has kept its benchmark rate close to zero for almost a year. The European Central Bank and Bank of England benchmark rates are at record lows of 1 percent and 0.5 percent respectively. “The absence of more assertive rhetoric in today’s statement signals clearly that the Reserve Bank will remove the policy accommodation ‘gradually’, a key word that once again was prominent in today’s statement,” said Stephen Walters , chief economist at JPMorgan Chase & Co. in Sydney. Stevens also dropped references in today’s statement, last made in the minutes of the bank’s October meeting, that the “very expansionary setting” of monetary policy was “possibly imprudent.” ‘Subtle Shift’ “A subtle shift in the tone of the commentary hints that officials are inclined to take each meeting on its merits,” Walters said. Australia’s economy is growing faster and generating more jobs than Treasurer Swan and Prime Minister Kevin Rudd forecast six months ago, helped by A$20 billion ($18 billion) in government cash handouts to consumers and Stevens’s record interest-rate cuts between September 2008 and April, when he slashed the benchmark rate by 4.25 percentage points to a half- century low of 3 percent. Unemployment is expected to peak at 6.75 percent in the second quarter of next year, well below the 8.5 percent rate Swan forecast in May for the three months through June 30, 2011, the government said yesterday. Today’s interest-rate increase will do nothing to resolve the nation’s housing shortage, said Housing Industry Association Chief Economist Harley Dale . “It would be prudent for the Reserve Bank to sit on its hands,” Dale said. The boost will add A$50 to monthly repayments on an average A$300,000 home loan. Australia & New Zealand Banking Group Ltd., Commonwealth Bank, National Australia Bank Ltd. and Westpac Banking Corp. raised their variable mortgage rates by a quarter point after today’s announcement. Tough Decisions “Today’s decision is a tough one for Australian families and businesses, but it’s also another indication that rates could not stay at 50-year emergency lows forever,” Swan told reporters in Brisbane today. Reports published in recent days show bank lending unexpectedly fell in September for the first time in nine months amid weaker demand for business credit, and manufacturing growth slowed in October. “It looks like the Reserve Bank is doing the right thing,” billionaire Gerry Harvey , chairman of Australian retailer Harvey Norman Holdings Ltd., said in an interview today. “Those people who are looking at interest rates at 3.5 percent are saying to themselves it’s still low and my mortgage is still a lot less than I was paying before” Harvey said by telephone. “It shouldn’t have a great effect in the marketplace.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia Inflation Cools to Slowest in Decade, Easing Interest Rate Talk

October 27, 2009

By Jacob Greber and Victoria Batchelor Oct. 28 (Bloomberg) — Australian inflation cooled to the slowest pace in 10 years, easing pressure on central bank Governor Glenn Stevens to increase the benchmark lending rate by a half point next week. The consumer price index rose in the third quarter by an annual 1.3 percent, the smallest gain since the second quarter of 1999, after advancing 1.5 percent in the previous three months, the Bureau of Statistics said in Sydney today. Prices gained 1 percent from the second quarter. Australia’s dollar fell as the report prompted traders to trim bets on the size of interest-rate increases. The Reserve Bank of Australia, the first Group of 20 central bank to raise borrowing costs since the height of the global financial crisis, said keeping borrowing costs too low may threaten its goal of maintaining inflation between 2 percent and 3 percent on average. “Anyone worrying about inflation in the near term is barking up the wrong tree,” said Prasad Patkar , who helps manage about $1.3 billion at Platypus Asset Management in Sydney. Still, “today’s report probably won’t alter the Reserve Bank’s stance on gradually withdrawing monetary stimulus from ‘emergency’ levels.” The Australian dollar, the best performer among the 16 major currencies, fell to 91.06 U.S. cents at 2:09 p.m. in Sydney from 91.80 just before the report, paring its gain over the past 12 months to 42 percent. The two-year government bond yield dropped 8 basis points to 4.85 percent. A basis is 0.01 percentage point. Bank Minutes The currency’s gain will “likely” act as a “contractionary influence on activity and help contain inflation,” central bank policy makers said last week. Investors are certain Governor Stevens will increase the key rate by a quarter point on Nov. 3, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. There is also a 10 percent chance of a half-point increase, the futures showed at 1:46 p.m., down from 16 percent prior to the report. Food prices fell 0.8 percent and health costs slipped 1 percent in the third quarter, today’s report showed. By contrast, electricity costs rose 11.4 percent and gasoline advanced 4 percent. The median estimate of economists surveyed by Bloomberg News was for annual inflation of 1.2 percent. Core Measures The Reserve Bank’s core inflation measures, which exclude the largest price increases and declines, were also published today. The weighted-median gauge of inflation advanced 0.8 percent in the third quarter for an annual increase of 3.8 percent. Economists forecast gains of 0.8 percent and 3.7 percent respectively. “The Reserve Bank is on a path back to neutral but there’s nothing in the data that suggests they have to ramp up their rhetoric or their tightening,” said Annette Beacher , senior strategist at TD Securities in Singapore. Signs are mounting that Australia’s economy, one of the few including China and India to skirt a recession in the first half of this year, will strengthen in coming months. Reports published since Sept. 30 show consumer confidence jumped this month to the highest level in more than two years, business sentiment held last month near a six-year high, retail sales rose in August, and house prices climbed 7.9 percent this year through August. Skilled Vacancies An index of skilled vacancies in Australia rose 1.9 percent in October from September, a report today showed. Gross domestic product expanded 1 percent in the first half of this year as consumers increased spending, spurred by the central bank slashing borrowing costs by a record 4.25 percentage points between September last year and April, plus A$42 billion ($39 billion) in government stimulus spending. Governor Stevens expects GDP growth to accelerate close to its “trend” pace of 3 percent next year. Australia’s experience of the global recession has been “much milder than elsewhere,” Assistant Governor Malcolm Edey said in Sydney today. “Australia came into the most intense phase of the crisis period in better shape than most, and with more scope than most to make timely macroeconomic policy responses.” The economy’s rebound from the worst global recession since the Great Depression was a key reason central bank policy makers raised the benchmark interest rate to 3.25 percent from a 49- year low of 3 percent on Oct. 6. Keeping the rate at “very low levels” may be “imprudent,” the bank said in minutes of its October meeting, published last week. “While the current forecasts suggested inflation would fall in the coming year, the expected trough in inflation was significantly higher than earlier thought,” the bank said on Oct. 20. “By 2011 inflation could be rising again.” To contact the reporters for this story: Jacob Greber in Sydney at jgreber@bloomberg.net Victoria Batchelor at vbatchelor@bloomberg.net

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Australian Recovery May Be Tougher Than Some Expect, Access Economics Says

October 18, 2009

By Jacob Greber Oct. 19 (Bloomberg) — Australia’s economic recovery will be tougher than many expect as government stimulus spending slows, interest rates climb and family savings decline, Access Economics said. While the nation’s economy “sailed through the worst of the global crisis on a sea of stimulus,” the recovery will be “softer and slower” than some expect, Chris Richardson , head of the Canberra-based research company, said in a report today. Central bank Governor Glenn Stevens , who this month became the first Group of 20 policy maker to raise borrowing costs, signaled on Oct. 15 he will increase rates again as soon as next month. Rising consumer confidence, a drop in the jobless rate and China’s demand for Australia’s raw materials including iron ore will boost the economy, Access said. “That doesn’t mean Australia will get off scott free,” Richardson said. “The stimulus is winding back, the cash splash has pretty much passed and the Reserve Bank will soon start to raise interest rates” again. Australia’s gross domestic product rose 1 percent in the first half of this year, boosted by a surge in consumer spending after the government distributed more than A$20 billion ($18 billion) in cash to households. The government is also spending A$22 billion upgrading roads, ports, railways and schools. Governor Stevens raised the benchmark lending rate on Oct. 6 by a quarter percentage point to 3.25 percent, after slashing borrowing costs by a record 4.25 percentage points between September last year and April. ‘Too Timid’ The central bank can’t be “too timid” in raising borrowing costs now that the threat of an economic crisis in the nation has passed, Stevens said last week. “Shoppers are spending 7 percent more than when the crisis hit. Between them, the Reserve Bank and the government gave the average family the equivalent of 10 percent extra income to spend,” Richardson said. Half of that increase has already disappeared and much of the rest will go over the next 18 to 24 months, Access predicts. “The implications of that for the recovery are tougher than most realize,” Richardson said. GDP will climb 0.9 percent this year, 2.7 percent in 2010 and 3.4 percent in 2011, Access forecast. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia’s Stevens Backs History of Being First, Right on Interest Rates

October 7, 2009

By Jacob Greber and Rebecca Keenan Oct. 7 (Bloomberg) — Australian central bank Governor Glenn Stevens has a reputation for doing the unexpected — and getting it right. His gamble yesterday, when he became the first central bank chief among the Group of 20 nations to raise interest rates since the height of the global financial crisis, will make or break that reputation. Get it right and Australia will extend its 18 years of economic growth. Get it wrong and he could nip the nation’s rebound in the bud. “Stevens is doing what he thinks is the right thing for the broader community — if that means flying in the face of convention, he’ll do it,” said Warren Hogan , chief economist at Australia & New Zealand Banking Group Ltd. in Sydney. “If Australia receives another shock from the global economy, this will look like a misguided policy move.” Stevens , a 51-year-old amateur pilot who was promoted to governor from his role as deputy in 2006, is not new to controversy. In 2007, he raised interest rates during an election campaign, destroying then Prime Minister John Howard’s boast about his government’s record of keeping borrowing costs low. In April last year, he was criticized by politicians, retailers, one of his predecessors and newspapers for raising interest rates too far too fast and risking a recession. Instead, Australia was one of the few nations to skirt the global recession, prompting former Reserve Bank Governor Bernie Fraser in June to reverse his earlier criticism of Stevens, telling Bloomberg: “Glenn Stevens has been first class. When we look at what has happened around the world, he has proved to be one of its best central bank governors.” Murdoch Newspaper Mellows Even Rupert Murdoch’s Sydney tabloid the Daily Telegraph has toned down its criticism. On April 5 last year, it led its front page with a picture of Stevens and the headline: “Is This The Most Useless Man in Australia” after he raised rates to a 12-year high of 7.25 percent. Today, it was more circumspect, saying in an editorial of yesterday’s decision that Stevens “could well be right, in which case the decision to increase interest rates will be seen as practically clairvoyant.” Demand for Australian minerals from China, the nation’s second-largest trading partner in 2008, plus a surge in consumer and business confidence, will help economic growth accelerate in coming months, the central bank says. Governor Stevens said yesterday that gross domestic product will expand “close to trend” next year, which economists including Citigroup Inc.’s Josh Williamson say is currently between 2.75 percent and 3 percent. By contrast, the International Monetary Fund forecast last week that the U.S. economy will expand 1.5 percent, Japan by 1.7 percent and the euro region by 0.3 percent. November Increase Surging domestic growth will prompt Stevens to raise rates by another quarter percentage point on Nov. 2, according to 21 of 23 economists surveyed by Bloomberg News today. The central bank’s track record also suggests Stevens may raise rates by more than a quarter point if further evidence emerges of an economic rebound or faster gains in property prices. The governor slashed the benchmark rate by one percentage point in October 2008 when the global credit crisis was at its worst, the biggest cut since 1992. “Stevens was one of the first to move rates by a sizeable amount last October and others followed” around the world, said Stephen Walters , chief economist at JPMorgan Chase & Co. in Sydney, who was the only analyst among 20 surveyed by Bloomberg to tip yesterday’s move. “He can take a lot of credit for those aggressive moves” as they helped the economy shrug off the global recession. Australia’s central bank also moved ahead of other central banks in May 2002, beginning a tightening cycle when economic growth was still slowing after the Sept. 11, 2001, terrorist attacks. ‘Moved Too Soon’ Investors have a 66 percent expectation Stevens will raise borrowing costs by a quarter point next month, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:58 a.m. Australia’s currency hit a 14-month high after yesterday’s rate increase, taking its gain this year against the U.S. dollar to 27 percent. The nation’s benchmark S&P/ASX 200 stock index is headed for its steepest annual gain since 1993, beating equity gauges for the U.S. and the world. Still, some say Stevens moved too soon. “We would have liked to have seen the Reserve Bank hold off on this decision” for a few more months, said Margy Osmond , chief executive officer of the Australian National Retailers Association. “Even sniffs of an interest-rate increase makes a difference in terms of people’s attitudes towards spending.” Cash Handouts Spending by consumers, whose confidence jumped to a two- year high this month, has been buoyed by the government’s decision to distribute A$20 billion ($18 billion) in cash to households following last year’s collapse of Lehman Brothers Holdings Inc. Rate gains may prompt shoppers to cut back. “That is a real danger” if Stevens raises rates “too quickly or by too much,” said ANZ Bank’s Hogan. “Australia is still an economy where economic growth is below trend, inflation is falling and expansionary policy is still warranted.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia Becomes First G-20 Nation to Lift Key Rate, Signals More to Come

October 6, 2009

By Jacob Greber Oct. 7 (Bloomberg) — Australia, the first Group of 20 nation to raise interest rates since the height of the global financial crisis, has signaled further increases in coming months. Reserve Bank Governor Glenn Stevens unexpectedly boosted the overnight cash rate target yesterday by a quarter percentage point to 3.25 percent, saying the justification for a benchmark rate at a half-century low “has now passed.” The local currency jumped after Stevens said Australia’s economy, which expanded during the deepest global recession since the 1930s and avoided the worst of the credit crisis, will strengthen faster than its major peers. Rising job vacancies, retail sales, house and stock prices, plus surging business and consumer confidence may prompt more rate increases. “The emergency lows in rates are no longer needed,” said Alan Oster , chief economist at National Australia Bank Ltd. in Melbourne. Stevens will raise the cash rate to 3.75 percent by the end of this year and 4.25 percent next year, he added. The Australian dollar held near its highest in 14 months today, trading at 88.98 U.S. cents as of 10:03 a.m. in Sydney from 89.02 cents in New York yesterday. The nations’ benchmark S&P/ASX 200 index rose 0.7 percent. The currency has gained 27 percent this year amid speculation Stevens will raise borrowing costs again, even as policy makers in the U.S., Europe and Japan keep benchmark rates unchanged. Global Rates The European Central Bank will leave its benchmark rate at a record low of 1 percent tomorrow, according to analysts surveyed by Bloomberg. The U.S. Federal Reserve kept the rate for overnight loans between banks at a record low of between zero and 0.25 percent on Sept. 24. “The fact the Reserve Bank chose to pull the pin shows they’ve got a lot of confidence in the economy,” said Joshua Williamson , a senior economist at Citigroup in Sydney. “The view about this from abroad will be a little bit bemused — here’s this little antipodean economy that’s doing well. “And now this little central bank has beaten the Norges Bank, Sweden’s Riksbank, the Bank of Korea and the People’s Bank of China in raising rates.” The Bank of Israel in August became the first central bank to increase rates since signs of easing in the global recession began. Israel is not a member of the G-20. ‘Risk Passed’ “The risk of serious economic contraction” in Australia has passed, Stevens said in a statement yesterday. “The board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy,” he added. “This will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.” Yesterday’s increase means households with an average-sized mortgage of A$250,000 ($222,000) will pay an extra A$40 a month in repayments. “The Reserve Bank has flagged there may be more to come,” Treasurer Wayne Swan told reporters in Canberra yesterday. There is “no doubt” Australia’s economy is recovering, he said. Reports last week showed retail sales, approvals to build private homes, bank mortgage lending and property prices all jumped in August. Advertisements for job vacancies rose in September for a second straight month, gaining 4.4 percent. Australia’s building industry expanded in September for the first time in 18 months, according to an index published today by the Australian Industry Group. Unemployment Rate A report tomorrow will show the unemployment rate rose to 6 percent last month from 5.8 percent, according to the median estimate of 20 economists surveyed by Bloomberg. By contrast, Europe’s jobless rate climbed in August to a 10-year high of 9.6 percent, and reached 9.7 percent in the U.S., the highest level since 1983. Consumer confidence jumped last month to the highest level in more than two years, a Westpac Banking Corp. report showed on Sept. 9. Business sentiment climbed in August to the highest level in almost six years, according to a separate report. “Overall, growth through 2010 looks likely to be close to trend,” Governor Stevens said. “Unemployment has not risen as far as had been expected.” Analysts including Citigroup’s Williamson estimate trend gross domestic product growth is currently between 2.75 percent and 3 percent. The bank’s decision will be “a shock for consumers in particular and those first-home buyers who have been borrowing pretty big,” said Stephen Walters , chief economist at JPMorgan Chase & Co. in Sydney, the only one of 20 economists surveyed by Bloomberg News who forecast yesterday’s move. Stock, House Prices “I think the Reserve Bank will move quite slowly” on future moves with quarter-point increases “every couple of months or so,” he said. Consumer spending, stoked by A$20 billion in government cash handouts to households, helped fuel a 1 percent expansion in Australia’s GDP in the first half of this year. The government is also boosting domestic demand by spending an extra A$22 billion on roads, railways, ports and schools. There are increasing signs the stimulus is starting to drive up asset prices. The S&P/ASX 200 index of stocks has surged almost 25 percent this year, and a report published on Sept. 30 by property monitoring company RP Data-Rismark showed house prices climbed 7.9 percent in the first eight months of this year. “Housing credit growth has been solid and dwelling prices have risen appreciably over the past six months,” Stevens said today. The Reserve Bank scrapped its forecast in August for the economy to contract this year, instead predicting GDP will rise 0.5 percent. The bank expects growth will accelerate to 2.25 percent in 2010 and 3.75 percent in 2011. “There’s a risk they’ve gone too early,” said Prasad Patkar , who helps manage about $1.2 billion at Platypus Asset Management in Sydney. “The recovery may not be all that well entrenched and yet they’re starting to unwind the stimulus.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Reserve Bank of Australia the First Central Bank to Raise Rates

October 6, 2009

Reserve Bank of Australia the First Central Bank to Raise Rates

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Australia Raises Interest Rates in First G-20 Increase Since Crisis Began

October 6, 2009

By Jacob Greber Oct. 6 (Bloomberg) — Australia’s central bank unexpectedly raised its benchmark interest rate from a 49-year low and signaled further increases in coming months amid signs the economy is strengthening. Reserve Bank Governor Glenn Stevens increased the overnight cash rate target to 3.25 percent from 3 percent in Sydney today. Only one of 20 economists surveyed by Bloomberg News forecast today’s move. The rest predicted no change. The local currency jumped to the highest level in 14 months as Australia became the first Group of 20 nation to boost borrowing costs since the start of the global financial crisis more than a year ago. Rising job vacancies, retail sales and house prices, plus surging business and consumer confidence support Stevens’ view that the “basis for such a low interest rate setting has now passed.” “It’s quite a pre-emptive move,” said Su-Lin Ong , senior economist at RBC Capital Markets Ltd. in Sydney. “They’re very comfortable the globe is returning to firmer growth, particularly Australia’s key trading partners in Asia. “There are a few more hikes ahead.” The Australian dollar rose to 88.53 U.S. cents at 5:47 p.m. in Sydney from 87.62 cents just before the decision was announced. The two-year government bond yield gained 4 basis points to 4.39 percent. A basis point is 0.01 percentage point. Governor Stevens, who cut the benchmark lending rate by a record 4.25 percentage points between September 2008 and April to cushion Australia against fallout from the global credit squeeze, said today that the economy is likely to expand “close to trend over the year ahead,” and inflation will remain near the bank’s target range of between 2 percent and 3 percent. Risk Has Passed “The risk of serious economic contraction” in Australia has passed, Stevens said in a statement. “The board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy,” he added. “This will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.” Today’s increase means households with an average-sized mortgage of A$250,000 ($221,000) will pay an extra A$40 a month in repayments. Jane Counsel, a spokeswoman for Westpac Banking Corp., Steve Batten , a spokesman for Commonwealth Bank of Australia, and Luisa Ford, a spokeswoman for National Australia Bank Ltd., said the banks are currently reviewing their interest-rate settings. Australia and New Zealand Banking Group Ltd. is also reviewing its rates, spokesman Kevin Foley said. Global Rates Speculation that Stevens would move faster than policy makers in the U.S., Europe and Japan to raise borrowing costs has helped stoke this year’s 26 percent gain in the nation’s currency. Indonesia’s central bank kept interest rates unchanged for a second month yesterday and the European Central Bank will leave its benchmark rate at a record low of 1 percent on Oct. 8, according to analysts surveyed by Bloomberg. The U.S. Federal Reserve left the rate for overnight loans between banks at a record low of between zero and 0.25 percent on Sept. 24. “The Reserve Bank has flagged there may be more to come,” Treasurer Wayne Swan told reporters in Canberra today. There is “no doubt” Australia’s economy is recovering. Reports last week showed retail sales, approvals to build private homes, bank mortgage lending and property prices all jumped in August. Advertisements for job vacancies rose in September for a second straight month, gaining 4.4 percent. ‘Consumer Shock’ A report on Oct. 8 will show the unemployment rate rose to 6 percent last month from 5.8 percent, according to the median estimate of 20 economists surveyed by Bloomberg. By contrast, Europe’s jobless rate climbed in August to a 10-year high of 9.6 percent, and reached 9.7 percent in the U.S., the highest level since 1983. “Overall, growth through 2010 looks likely to be close to trend,” Governor Stevens said. “Unemployment has not risen as far as had been expected.” The bank’s decision will be “a shock for consumers in particular and those first-home buyers who have been borrowing pretty big,” said Stephen Walters , chief economist at JPMorgan Chase & Co. in Sydney, who forecast today’s move. “I think the Reserve Bank will move quite slowly” on future moves with quarter-point increases “every couple of months or so.” Consumer spending, stoked by A$20 billion in government cash handouts to households, helped fuel a 1 percent expansion in Australia’s gross domestic product in the first half of this year. Stock, House Prices The government is also boosting domestic demand by spending an extra A$22 billion on roads, railways, ports and schools. There are increasing signs the stimulus is starting to drive up asset prices. The nation’s benchmark S&P/ASX 200 index of stocks has surged more than 20 percent this year, and a report published on Sept. 30 by property monitoring company RP Data-Rismark showed house prices climbed 7.9 percent in the first eight months of this year. “Housing credit growth has been solid and dwelling prices have risen appreciably over the past six months,” Stevens said today. The Reserve Bank scrapped its forecast in August for the economy to contract this year, instead predicting GDP will rise 0.5 percent. The bank expects growth will accelerate to 2.25 percent in 2010 and 3.75 percent in 2011. “There’s a risk they’ve gone too early,” said Prasad Patkar , who helps manage about $1.2 billion at Platypus Asset Management in Sydney. “The recovery may not be all that well entrenched and yet they’re starting to unwind the stimulus.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia Raises Key Interest Rate From 49-Year Low, Signals More to Come

October 5, 2009

By Jacob Greber Oct. 6 (Bloomberg) — Australia’s central bank unexpectedly raised its benchmark interest rate by a quarter percentage point from a 49-year low amid signs the economy is strengthening. Reserve Bank Governor Glenn Stevens increased the overnight cash rate target to 3.25 percent from 3 percent in Sydney today. Only one of 20 economists surveyed by Bloomberg News forecast today’s decision. The rest predicted no change. The local currency jumped as Australia became the first Group of 20 nation to raise borrowing costs since the start of the global financial crisis more than a year ago. Rising job vacancies, retail sales and house prices, plus surging business and consumer confidence support Stevens’ view that the “basis for such a low interest rate setting has now passed.” “It makes sense for the Reserve Bank to start the tightening cycle at the earliest opportunity,” said Stephen Walters , chief economist at JPMorgan Chase & Co. in Sydney who forecast the increase. There has recently been “a near uninterrupted stream of healthy economic data.” The Australian dollar rose to 88.34 U.S. cents at 2:41 p.m. in Sydney from 87.62 cents just before the decision was announced. The two-year government bond yield gained 1 basis point to 4.36 percent. A basis point is 0.01 percentage point. Governor Stevens, who cut the benchmark lending rate by a record 4.25 percentage points between September 2008 and April to cushion Australia against fallout from the global credit squeeze, said today that the economy is likely to expand “close to trend over the year ahead,” and inflation will remain close to the bank’s target range of between 2 percent and 3 percent. ‘Risk Has Passed’ “The risk of serious economic contraction in Australia now having passed, the board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy,” Stevens said in a statement. “This will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.” Today’s increase means households with an average-sized mortgage of A$250,000 will pay an extra A$40 a month in repayments. Jane Counsel, a spokeswoman for Westpac Banking Corp., Steve Batten , a spokesman for Commonwealth Bank of Australia, and Luisa Ford, a spokeswoman for National Australia Bank Ltd., said the banks are currently reviewing their interest-rate settings. A spokesman for Australia and New Zealand Banking Group Ltd. was unable to comment immediately. Speculation that Stevens would move faster than policy makers in the U.S., Europe and Japan to raise borrowing costs has helped stoke this year’s 25 percent gain in the nation’s currency to a 13-month high. Global Rates Indonesia’s central bank kept interest rates unchanged for a second month yesterday and the European Central Bank will leave its benchmark rate at a record low of 1 percent on Oct. 8, according to analysts surveyed by Bloomberg. The U.S. Federal Reserve left the rate for overnight loans between banks at a record low of between zero and 0.25 percent on Sept. 24. Investors had a 44 percent expectation Stevens would raise the overnight cash rate target by a quarter percentage today, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. They also tipped a 100 percent chance of an increase on Nov. 3, the index showed at 6:32 a.m. Reports published last week showed retail sales, approvals to build private homes, bank mortgage lending and property prices all jumped in August, adding to signs the economy will strengthen this quarter. Advertisements for job vacancies rose in September for a second straight month, gaining 4.4 percent. A report on Oct. 8 will show the unemployment rate rose to 6 percent last month from 5.8 percent, according to the median estimate of 20 economists surveyed by Bloomberg. By contrast, Europe’s jobless rate climbed in August to a 10-year high of 9.6 percent, and reached 9.7 percent in the U.S., the highest level since 1983. Cash Handouts Australia’s jobless rate “has remained stubbornly low for the past six months,” Brian Redican , an economist at Macquarie Group Ltd. in Sydney, said ahead of today’s decision. “That surprising strength in domestic economic data made it highly likely the official cash rate would rise before year end.” Consumer spending, stoked by A$20 billion ($17.5 billion) in government cash handouts to households, helped fuel a 1 percent expansion in Australia’s gross domestic product in the first half of this year. The government is also boosting domestic demand by spending an extra A$22 billion on roads, railways, ports and schools. There are increasing signs the stimulus is starting to drive up asset prices. The nation’s benchmark S&P/ASX 200 index of stocks has surged more than 20 percent this year, and a report published on Sept. 30 by property monitoring company RP Data-Rismark showed house prices climbed 7.9 percent in the first eight months of this year. Economic Outlook “We are in a situation where we would not want to see very strong growth in housing prices — that would be unhelpful from a social perspective,” Anthony Richards , the head of the central bank’s economics department, said on Sept. 29, adding that it’s “not reasonable to expect that interest rates will stay at the current low levels indefinitely.” The Reserve Bank scrapped its forecast in August for the economy to contract this year, instead predicting GDP will rise 0.5 percent. The bank expects growth will accelerate to 2.25 percent in 2010 and 3.75 percent in 2011. “We remain unconvinced of the need for an ‘urgent’ withdrawal of monetary policy,” Annette Beacher , an economist at TD Securities Ltd. in Singapore, said ahead of today’s decision. “Easing in April and tightening in October could prove to be too much of a shock to an economy still highly leveraged to government assistance.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Australia’s Swan Says Jobless Rate Will Keep Rising Amid Global Recession

October 3, 2009

By Madelene Pearson Oct. 4 (Bloomberg) — Australia’s unemployment rate is expected to keep rising as the global recession dampens growth in the local economy, Treasurer Wayne Swan said. The nation’s jobless rate will peak at 7 percent in 2010, lower than the 9.4 percent rate forecast for major advanced economies, Swan said today in his weekly economic note sent by e-mail, citing the International Monetary Fund. That’s “still too many jobs lost as unemployment continues to rise,” Swan said. “Even with the IMF last week downgrading its forecast for peak unemployment in Australia, the unemployment rate is expected to continue to rise as the impacts of the global recession continue to wash though our economy.” Australian employment fell in August by almost twice as much as economists estimated, the statistics bureau said on Sept. 10, while the unemployment rate was at 5.8 percent. The nation’s jobless rate would be as much as 1.9 percentage points higher in 2010 without government stimulus to consumers and infrastructure spending, the Organization for Economic Cooperation and Development said last month. “The federal government still has its foot on the accelerator, but will the Reserve Bank of Australia hit the brakes at the same time?” Robert Olivier , from recruitment company the Olivier Group said in an e-mailed release today. Australian labor force figures will be released this week and its central bank will make a decision on interest rates. The Reserve Bank of Australia will keep its overnight cash rate target unchanged at 3 percent on Oct. 6, according to 19 of 20 economists surveyed by Bloomberg News. ‘Significant Fall’ “The significant fall in the number of hours worked in Australia shows the sacrifice being made by many thousands of Australians to save those jobs,” Swan said in the note. “While Australia has outperformed every advanced economy throughout this global recession, now is not the time for victory laps or for ripping out the stimulus.” Australia’s economy will grow 0.7 percent this year and 2 percent in 2010, the IMF said on Oct. 1, compared with its April forecast for a 1.4 percent contraction and 0.6 percent expansion respectively. The global economy is forecast to contract by 1.1 percent in 2009, versus a previous estimate of 1.4 percent, before expanding at 3.1 percent in 2010, up from 2.5 percent forecast previously, Swan said in his note, citing the IMF. “Despite these improved forecasts the recovery in the global economy is far from assured,” Swan said. To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net

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India’s Economic Growth Probably Accelerated for First Time Since 2007

August 30, 2009

By Cherian Thomas Aug. 31 (Bloomberg) — India’s economic growth probably accelerated for the first time since 2007, justifying Finance Minister Pranab Mukherjee ’s assertion that the nation has “weathered the storm” from the global recession. Asia’s third-largest economy expanded 6.2 percent in the three months to June 30 after a 5.8 percent gain in the previous quarter, according to the median forecast of 27 economists in a Bloomberg News survey. The Central Statistical Organisation will release the figure at 11 a.m. in New Delhi today. The recovery may be derailed by a weak monsoon that could reduce farm output in rural areas, where three-fifths of India’s 1.2 billion people live. Subdued growth and the risk of faster inflation caused by higher food and commodity prices pose a “complex dilemma” for the central bank on whether to raise borrowing costs, Governor Duvvuri Subbarao said last week. “The central bank’s job has been made more difficult because of the monsoon effect,” said Vishnu Varathan , a regional economist at Forecast Singapore Pte. “Timing the interest rate hike is the issue. They have to make sure they aren’t behind the curve to check inflation and at the same time they don’t want to hurt growth.” Before the rains turned scanty, the Reserve Bank of India on July 28 forecast the economy would grow 6 percent “with an upward bias” in the year ending March 31, the weakest pace since 2003. It also raised its inflation forecast to 5 percent from 4 percent by the end of the financial year. The key wholesale price inflation index fell 0.95 percent in the week to Aug. 15. ‘Recovery Impulses’ The central bank’s Aug. 27 annual report said withdrawing the cheap money available in the economy runs the risk of weakening “recovery impulses,” while sustaining inexpensive credit for too long “can only increase inflation in the future.” As the global recession hit India, the central bank injected about 5.6 trillion rupees ($115 billion) into the economy, which together with government fiscal stimulus amounts to more than 12 percent of gross domestic product. The Reserve Bank kept borrowing costs unchanged in its last monetary policy statement on July 28 and signaled an end to its deepest round of interest-rate cuts on concern that inflation will “creep up” from October. The next policy meeting is scheduled for Oct. 27. Drought or drought-like conditions has been declared in 278 districts in India, or 44 percent of the nation’s total, as rainfall have been 25 percent below average so far in the four- month monsoon season that started June 1, the farm ministry said Aug. 27. Farm Output Morgan Stanley economist Chetan Ahya and Nomura Securities Co. economist Sonal Varma said the drought will trim farm production though its impact on industry and services will be limited. Services including banking and software make up 55 percent of India’s $1.2 trillion economy, while industry accounts for a quarter. “The lagged impact of monetary and fiscal policy action, improved business confidence in view of increased political stability, and recovery in external demand should ensure that the growth acceleration is sustained,” Ahya said. India’s industrial production in June gained 7.8 percent from a year earlier, the fastest pace in 16 months, the government said Aug. 12. Ahya expects the economy to grow between 5.2 percent and 5.8 percent in the year to March 31. That pace still makes India the fastest growing major economy after China, attracting overseas companies including Harley-Davidson Inc., the biggest U.S. motorcycle maker. The U.S. economy shrank at a 1 percent annual rate last quarter. Chinese GDP rose 7.9 percent in the second quarter from a year earlier. Car Plants Harley-Davidson said last week it plans to start sales in India from next year. Steel Authority of India Ltd., the nation’s second-largest steelmaker, said this month that demand for so-called flat products, mainly used to make automobiles, is rising and increased their prices by 900 rupees, or 3.4 percent, a ton. Volkswagen AG, Toyota Motor Corp. and other car manufacturers have announced plans to spend more than $6 billion through 2012 to build factories in India to offset slumping demand in their home markets. “Economic growth in India is still very good,” said Jnaneswar Sen, vice president in the Indian unit of Honda Motor Co. , Japan’s second-largest carmaker. Honda plans to increase production in India by 50 percent from next month in response to rising demand. To contact the reporter on this story: Cherian Thomas in New Delhi at Cthomas1@bloomberg.net .

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New Zealand Keeps Benchmark Interest Rate Unchanged at 2.5%, May Cut Again

July 29, 2009

By Tracy Withers July 30 (Bloomberg) — New Zealand’s central bank kept its benchmark interest rate unchanged for a second month and said it may cut borrowing costs further as a rising currency threatens a recovery from the worst recession in three decades. “The forecast recovery is based on a further easing in financial conditions,” Reserve Bank Governor Alan Bollard said in a statement in Wellington today after leaving the official cash rate at 2.5 percent. “If this easing does not occur, the recovery could be put at risk

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New Zealand May Leave Key Rate Interest Unchanged Amid Signs of Recovery

July 28, 2009

By Tracy Withers July 29 (Bloomberg) — New Zealand central bank Governor Alan Bollard may keep the benchmark interest rate unchanged for a second month as a recovery in the housing market and business confidence signals an end to a recession. The Reserve Bank of New Zealand will leave the official cash rate at a record-low 2.5 percent at 9 a.m.

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Zimbabwe Share Trading Value Surges, Surpassing Kenya, RenCap’s Danha Says

July 28, 2009

By Janice Kew July 28 (Bloomberg) — Zimbabwe share trading has surged to $1.3 million a day, surpassing Kenya, as the east African nation’s economy recovers from a decade-long recession, says Renaissance Capital. Daily transactions have increased from $50,000 in March as foreign investors return, making the Zimbabwe Stock Exchange the third-biggest in sub-Saharan Africa by trading value, according to the Moscow-based brokerage with offices in Africa. Reserve Bank of Zimbabwe Governor Gideon Gono ordered the shutdown of the exchange in November, alleging some traders were engaged in fraud, as President Robert Mugabe blamed pressure from western countries for pushing the economy toward collapse.

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India Leaves Interest Rates Unchanged on Concern Inflation Will Rebound

July 28, 2009

By Cherian Thomas July 28 (Bloomberg) — India’s central bank kept borrowing costs unchanged, signaling an end to its deepest round of interest-rate cuts on concern that inflation will “creep up” from October.

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Indian Rupee Bond Yields May Surge to 8% as RBI Switches Focus, UBS Says

July 26, 2009

By Anoop Agrawal July 27 (Bloomberg) — Indian bonds, Asia’s worst-performers in 2009, may keep tumbling through year-end as the central bank stops cutting interest rates and the government sells a record amount of debt, UBS AG said. The yield on the benchmark 10-year local-currency bond may climb more than 1 percentage point to a peak of 8 percent by end-2009, the highest since October 2008, said Ju Wang, an Asian fixed-income strategist at UBS. Investors who wait until then to buy the bonds would avoid a loss of 4 percent, according to Bloomberg calculations

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Australia’s Second-Quarter Consumer Prices Rise 0.5% on Health Services

July 21, 2009

By Jacob Greber and Ben Sharples July 22 (Bloomberg) — Australian consumer prices rose in the three months through June, stoking speculation the central bank has finished a record round of interest-rate cuts. The consumer prices index gained 0.5 percent from the first quarter, when it advanced 0.1 percent, the Bureau of Statistics said in Sydney today. That matched the median estimate of 19 economists surveyed by Bloomberg

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Australia Central Bank Says Interest-Rate Cuts Effective in Stoking Demand

July 20, 2009

By Jacob Greber July 21 (Bloomberg) — Australia’s benchmark interest rate at a half-century low of 3 percent is helping drive economic growth amid signs domestic demand is more resilient than expected, the central bank said. “Members judged the current stance of monetary policy to be consistent with fostering sustainable growth and low inflation,” while still giving the bank scope to cut borrowing costs “at a later stage” if needed, policy makers said in minutes of their July 7 meeting released in Sydney today. The full impact of Reserve Bank of Australia Governor Glenn Stevens ’ decision to slash the overnight cash rate target by a record 4.25 percentage points between September and April will “still be coming through for some time,” the minutes said

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