Interest rates in Australia

The Reserve Bank could raise interest rates twice by as soon as early next year, amid continuing signs the economy is sailing unscathed through the tumult in global credit markets.

Citigroup’s director of economic and market analysis, Stephen Halmarick, added a second rise to his interest rate forecast yesterday, and is now tipping the Reserve’s official cash rate will hit 7 per cent by early next year.

Mr Halmarick said price rises in key “pressure points” such as rents, home building costs, food, electricity and petrol prices, were building the inflationary risks in an economy outstripping its potential.

This, by the by, is what happens when inflation is thought of as inflation, rather than, say, core versus actual (our government does that with election promises – it’s our little quirk).

This also comes as we push ever upwards against the US dollar (slight easing yesterday. Wait. Friday)

forex pic

The Renminbi

yuan

The Yen

yen
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The Euro

euro

It certainly is a good time to be the Australian dollar. We may only be able to live on about 6% of our land, but the rest of it sure has tonnes of useful commodities underneath it (sorry, Kakadu). On interesting aspect of this is all that debt being carried by the states, discussed here previously. I should be interested to know the terms under which they borrowed that money.

Also interesting are the things that are driving the economy and the dollar: commodities for China and inflation. The real value of our GDP (growing at 2.7% in 2006, projected to be higher this year, after inflation currently listed as 2.1% – less than previous quarters, and certainly less than 2006, but a decent increase on the last quarter) is not really increasing all that much. Although, relative to unnamed countries with stagnant real growth and wholly fictitious concepts of inflation, we can’t complain.

Unless you’re trying to manage that mortgage either in inner Sydney, or that commute from one of those miles-from-anywhere places that we’re repeatedly told can solve everything.

But back to the commodities and inflation. One will run out – either literally, or will cease to be profitable (again) once other economies slow down (still the preferred outcome in China) while the other does not really do much for long-run growth. Just as, in the US, the cheap fuel/credit allowed for a cycle of consumption and retail growth, ultimately substanceless, there is no reason our growth will last as it has. There never is, but we can at least look to fundamentals, as they call them, of economic growth.

Amongst other things, as our currency appreciates, we need those demanding our currency to continue the growth in their wealth. As they slow, we will slow – and then discover, properly, how solid is the employment and wealth that we have gained over the last year or so. Of course, that too will become a political football of wonderous proportions, come the day (‘the day’ referring to one in which John Howard and his cabinet of walking weasel words are the hell out of our government).

Post-Script, because I’m enjoying my weekend and may not be back for a while:

How do you find out general reactions to advertising campaigns, of your own policies, upon which you’ve spent bucket-loads of tax-payers’ money? You go out and spend some more. This is the Howard government at easily its most insecure.

The Federal Government is conducting expensive national research to test voter response to its heavily criticised advertising campaigns.

Respondents have been asked their view about the media blitz on the Government’s climate change and industrial relations policies.

The national “testing” poll of 1000 people – carried out by Newspoll and Open Mind Research Group at an estimated cost in excess of $100,000 – started on September 10.

The research period ends tomorrow, allowing time for the results to be available for the election campaign, widely expected to be called within the next 10 days.

But a government cannot use taxpayer-funded research for political purposes while in caretaker mode during an election campaign, raising questions about how it will be used.

Inappropriately. You saw it here first.

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