Governor hints Australia may hike interest rates

Governor hints Australia may hike interest rates

	Published : Fri, 17 Feb 2006 14:15 By : Andrew Stead Print this Story

SYDNEY, Australia: Australia's central bank may consider increasing the interest rates this year as it sees signs of inflationary pressures on the economy. At a meeting with lawmakers in Canberra, Reserve Bank of Australia's governor Ian Macfarlane indicated chances are for the interest rates to rise rather than fall in the months ahead.

While he was optimistic on the general outlook of the economy, which is being strengthened by global growth, high commodity prices and increasing investments, he said the economy appeared to be confronting capacity constraints after 15 years of satisfactory performance.

He said the board of the central bank had recently found the current policy setting to be broadly consistent with the economy's requirements for the time being. The board had decided to keep rates at 5.5 per cent at its first meeting of the year last week.

But, Macfarlane said, looking ahead, it felt that "on balance ... it is more likely that the next move in interest rates would be up rather than down".

Macfarlane said wage growth will be a crucial area to watch as a risk to inflation.

The central bank has said it expects the underlying inflation to be around 2.75 per cent through 2007, which will keep it within the bank's 2-3 percent target band.

The country's economy, the fifth-largest in the Asia-Pac region, has been expanding for 15 years in succession. Macfarlane expects the growth to be about 3.25 per cent for 2006. In the third quarter of 2005, it expanded 2.6 per cent according to latest figures.

Wage price index, which measures hourly pay rates, rose 4.2 per cent in the third quarter from a year earlier, which is the biggest gain since 1997.

Unemployment rate rose to 5.3 per cent in January, the highest since October 2004, from 5.2 per cent in December. The jobless rate had fallen to a 29-year low 5 per cent last year.

The governor's comments led to the Australian dollar rising to as high as 74.18 U.S. cents from 73.90 cents. It returned to 73.91 cents later.