Australian Interest Rate Rises But ECB And Bank of England Remain On Hold

By: Mike Campbell

The Australian Central Bank has raised its interest rates to 4.25%; an increase of 0.25% since last month. The hike is the fifth increase since October 2009 and is intended to cool inflationary pressure both in the housing market and more generally. The bank has signalled that further rises are likely. The interest rate in Q4 2009 was 2.1% which is towards the bottom of Australia’s target band (2-3%) for inflation. However, indicators suggest that the rate of inflation is rising – despite the contradictory news that both consumer spending and the construction sector have cooled off recently. Australia was the only major economy not to go into a formal recession during the global financial crisis.

In Europe, the European Central Bank (ECB) and the Bank of England have left interest rates on hold again. The aim is to provide cheap money to business in the hope of stimulating the economy. The ECB rate was left at 1% whereas the Bank of England held rates at 0.5%. The ECB rate has remained unchanged for 11 months whereas the Bank of England has left the rate at its historic low since March of last year.

The Bank of England has also continued with its decision to halt “Qualitative Easing” whereby new funds were being pumped into the economy by the bank through creating new cash. £200 billion was pumped into the UK economy under the scheme as part of the UK’s response to the crisis in the financial sector.

ECB President, Jean-Claude Trichet said that the ECB expected growth to be moderate for the rest of the year, but sounded a cautionary note about the continuing “environment of uncertainty”. Responding to reporters questions, he reiterated the ECB’s position that they saw no reason to expect the Greek government to default on its debts.