Wednesday, October 7, 2009

Australian raising rate --- a good news or a bad news ?

The whole world cheered when Australian central government raised interest rate by 0.25% to 3.25%, from a 49 year old low: 3.0%. Looking at half full - that's a powerful signal of strong recovery and the worst is behind us.

However, if other central bankers like the US, ECB or Japan starts tightening cycle, that could spells disaster unless they are convinced with a V-shape recovery or else certainly a potential policy mistake.

On the flip side, if the rest of the world still keeps their interest rate low, the Aussie will be a fertile ground for hot money(much stronger exchange rate). Australian Dollar to Ringgit year-to-date is pretty strong.

Liquidity tightening will certainly help preventing bubble(Austrian school economist will be extremely happy) but we will have to go through the pains and financial asset prices will have to fall. The six trillion dollar question is: do the governments have the political wills to pull it off?

(TheEdgeMalaysia)SYDNEY: Australian housing and CONSTRUCTION [] data on Wednesday added to evidence of economic recovery that spurred the central bank to raise interest rates on Tuesday, Oct 6 and is expected to bring more tightening in months ahead, says Reuters.

Demand for investment-related home loans and construction finance jumped in August, government data showed. A separate industry survey showed a pickup in overall construction last month, helped by a revival in demand for housing, ending 18 months of contraction.


Paul said...

good info posted :)

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