Australia lifts rates again
CNN's Geoff Hiscock, Asia Business Editor
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The Australian dollar is at a six-year high against the greenback.
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SYDNEY, Australia (CNN) -- Australia's central bank as expected has lifted its benchmark interest rate by another quarter of a percentage point to 5.25 percent in its second monthly move to help cool a long-running housing boom.
The Reserve Bank of Australia said Wednesday the overall prospect for the Australian economy is for strong growth.
It said in these circumstances a rate rise was warranted to "reduce the degree of stimulus" from monetary policy.
Australia last month became the first major economy to tighten rates after a long period of stable or falling rates.
The bank's move follows the release of strong retail figures Tuesday showing the Rugby World Cup helped boost retail sales by 1.2 percent in October to an annual growth rate of 8.6 percent.
Other figures released Wednesday morning showed the Australian economy growing at an annual rate of 2.6 percent, with a seasonally adjusted rise of 1.2 percent in the September quarter over the June quarter.
SG Australia chief economist Glenn Maguire told CNN he expected one more interest rate rise of 0.25 percentage points in February, after which the Reserve Bank would "sit back and assess the impact".
He said he expected the latest rate hike would have an important psychological impact on those households which were financing consumption with debt.
In a statement confirming the rate rise, Reserve Bank of Australia Governor Ian Macfarlane said Wednesday conditions in the international economy had continued to improve, with recovery in the United States becoming more broadly based.
He said stronger conditions were evident too in Japan, China, other parts of East Asia, and to a lesser extent in Europe.
Macfarlane said there were some early signs of easing in the Australian housing market, but overall growth prospects were strong.
He again warned that the growth of credit "remains rapid" and in fact had picked up in recent months.
When the bank announced its first rate rise since June 2002 last month, Macfarlane said credit growth was running faster than a rate consistent with long-term economic stability.
On the currency market, the Australian dollar is trading Wednesday at six-year highs above 73 U.S. cents, most recently at 73.12 cents.
Maguire said the strength of the Australian dollar had to be looked at in the context of the global recovery. It did not pose a risk to Australia's growth prospects and he expected that exports in 2004 would still rise.
On the equities front, the Australian share market is up about 0.8 percent in early afternoon trade, with the benchmark S&P/ASX200 at 3212.8. Resources leader BHP Billiton is up 1.2 percent and big bank NAB is ahead 1.3 percent.
Australian Treasurer Peter Costello warned recently that property investment is not a "one-way street" and that investors should be aware housing prices could fall.
A long-running housing and construction boom has been one of the chief factors underpinning Australia's economy in the past two years, helping to offset negative factors such as the drought, the global downturn and the loss of tourism revenue stemming from the war in Iraq and the SARS outbreak.
