Signals from Australia’s Rate Hike

Signals from Australia’s Rate Hike


In a surprise move, Australia’s central bank raised its interest rate by 25 basis-pts to 3.25% yesterday, making it the first G-20 nation to boost its benchmark rate. This was based on its confidence that the worst is over and expectation of rising inflation risk. This step towards tightening monetary policy sends out three important signals on the global economic front.

These are:
(1) the end of aggressive interest rate cuts around the world,
(2) liquidity in global banking systems may be tightened gradually, and
(3) there are growing risks of inflationary pressure to economic growth. However, we do not see other central banks immediately taking the cue from this move, except for countries that are experiencing significant economic improvement and high inflationary pressure in the near term.

For Malaysia, we see Bank Negara Malaysia (BNM) keeping its rates steady until the end of this year and reserve room to raise rates next year.