Offshore Capitalist

Australia Increases Benchmark Interest Rate to 3.75%

Dec. 1 (Bloomberg) — Australia’s central bank raised its benchmark interest rate by a quarter percentage point for an unprecedented third straight month as evidence mounts that the nation’s economy is strengthening.

Reserve Bank Governor Glenn Stevens increased the overnight cash rate target to 3.75 percent from 3.5 percent in Sydney, as forecast by 19 of 20 economists surveyed by Bloomberg News. The board won’t meet again until February.

The nation’s currency fell after Stevens signaled he may now pause, saying the board’s “material adjustments” to borrowing costs are enough to keep inflation within his 2 percent to 3 percent target range. Rising consumer confidence, higher house prices and China’s demand for resources such as iron ore from BHP Billiton Ltd. are driving a “new upswing” in the economy that will last several years, the bank says.

Stevens’s “statement reads as if he feels they’ve done a fair bit of work and can now afford to take time out,” said Stephen Roberts, a senior economist at Nomura Australia Ltd. in Sydney. “I’d be looking for another rate increase no earlier than March or April.”

The Australian dollar fell to 91.33 U.S. cents at 3:45 p.m. in Sydney from 91.71 cents just before the decision was announced. The two-year government bond yield dropped 7 basis points to 4.24 percent. A basis point is 0.01 percentage point.

Today’s increase is the first time the central bank has raised borrowing costs at three straight meetings, boosting the rate from a half-century low of 3 percent. By contrast, officials in the U.S., U.K. and Europe have kept their benchmark lending rates at historic lows this year.

via Australia Increases Benchmark Interest Rate to 3.75% (Update3) – Bloomberg.com.

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