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RBA: 6.25% on the Horizon?
Tuesday, 22 August 2006 12:30:06 GMT  |  Terri Belkas, Junior Currency Analyst
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Australian officials are proudly touting the strong sustained growth of the economy, and openly considering rate hikes in the future…

RBA_IM Ian Macfarlane, RBA Governor

“I think, with the sort of capacity constraints we're talking about, with the economy growing at a reasonable rate, and with probably inflationary pressures coming from abroad, it's more likely that there will [be further increases in interest rates] than there won't”. – August 18, 2006

“You couldn't really make a case that [interest rates are] restrictive or contractionary yet”. – August 18, 2006

"I believe Australia's 15 years of economic growth can be sustained because of strong business investment, particularly in the resources sector. Strong growth in Australia has resulted in capacity restraints in the economy, making it more likely that there may be further interest rates rather than decreases. There are a number of indications that growth has picked up again over the past six months, but our forecasts do not have it going back to the four plus rates of a few years ago." – August 18, 2006

RBA_GS  Glenn Stevens, RBA Deputy Governor

“Of the several tightenings that we've done, seven I think since the up-phase started some four years ago, about one of those has been offset by growing competition and therefore this compression of margin…is a factor the bank may have to take into account when shaping monetary policy. I suppose in principle that means you have to think about whether you need to do a little more than you would otherwise have had to do.” – August 18, 2006

RBA_PC Peter Costello, Treasurer of Australia

"Oil prices are much greater today than they were under the first and second oil price shocks, but our economy is in a better position in this sense: that our reliance on oil is less; that our economy is more open; that it's much more competitive; that our labor market is better; that our tax arrangements are better; that our monetary policy is conducted better. But in the face of those all-time record high oil prices we have to remain vigilant; the risks are significant." – August 15, 2006

"We can afford increases in real wages, as long as we have a productivity bonus that backs it up." – August 16, 2006

“It appeared the drop was connected to the quarter of a percentage point interest rate hike approved by the Reserve Bank board. The August figure, the fall of 16.2% in consumer sentiment, appears to relate to the interest rate rise which the Reserve Bank announced following its meeting on the second of August. Despite the fall in consumer sentiment in the month of August, fundamentals of the Australian economy are strong." – August 16, 2006




ECB: Reaching a Peak?


The Euro-zone largest economy is doing quite well according to German officials...

ECB_AM Angela Merkel, German Chancellor

“Germany, the largest economy on the Continent, is no longer the sick man of Europe. I think we can say that we have turned the corner, though that development must still be consolidated. The strengthening of the economy was partly a result of her coalition government's efforts to cut the budget deficit and ease regulations on small businesses." – August 22, 2006

ECB_AW Axel Weber, ECB Council Member

"I consider it possible that growth this year will have a 2 in front of the decimal point". He noted that risks to growth include the 2007 VAT hike, which will provide "a damper on the upturn", as well as high energy prices. Other risks include a slowdown in global growth as well as "large shifts" in exchange rates, which would "further weigh on exports". Additionally, he said that the government needs to increase efforts to cut government spending and "all subsidies need to be much more closely examined.” – August 21, 2006

Analysts, on the other hand, have a very different opinion…

ECB_GF Gebhard Flaig, Ifo Executive Board Member

"The latest results indicate the world economy is approaching a cooling down phase of the growth cycle." – August 22, 2006

ECB_WF Wolfgang Franz, ZEW President

"The assessment of the financial market analysts shows that the situation in 2006 and the expected development for spring 2007 still diverge considerably. The sunny assessment of the business climate in Germany might be justified in 2006, but in 2007 dark clouds will appear on the horizon." –August 22, 2006




US Fed: Where Do We Go From Here?

 

Voting members of the FOMC are remaining fairly quiet, but non-voters sound concerned about inflation…


Oil_Richard Fisher Richard Fisher, Federal Reserve Bank of Dallas President

“Inflation is still the greatest risk to the U.S. economy, and policy-makers will not hesitate to raise interest rates again if incoming data shows it is necessary.” – August 16, 2006

“While the economy is cooling because of a surprisingly severe housing slowdown and rising energy prices, there is no recession in sight. There is a definite increase in inflationary momentum. I believe the previous rate hikes are beginning to tamp down inflation but that no one can tell when their full impact will hit. If anybody tells you with absolute conviction that the Fed is done raising interest rates or with equal conviction that they have only paused and will raise rates more starting in September or October ... they are only guessing.” – August 17, 2006

Fed_CM Cathy Minehan, Federal Reserve Bank of Boston President

“I don’t take a lot of comfort from the recent CPI figures. I do think the U.S. economy is subject to increased risks on the growth side, and on the inflation side.” – August 21, 2006

Even the President recognizes that economic health is on the minds of consumers…

Fed_GWB George W. Bush, US President

“Americans who spend a lifetime working hard should be confident that their pensions will be there when they retire. Some businesses are not putting away the cash they need to fund the pensions they promised to their workers.” – August 18, 2006

"If I were a candidate…I‘d say, ‘Look at what the economy has done. It‘s strong. We‘ve created a lot of jobs… I‘d be reminding people that tax cuts have worked in terms of stimulating the economy.” – August 21, 2006




PBoC: Reigning in Growth

 

Looking to control heated expansion, the central bank unexpectedly hiked rates 27 basis points to 6.12% and continued to avoid the topic of yuan appreciation…

PBoC_WJ Wen Jiabao, Premier of China

Said that officials must “resolutely control” the surging investment boom. – August 17, 2006

PBoC_logo PBoC Statement

"It's necessary to use interest rates as a lever to curb investment and demand for credit while mopping up liquidity.” – August 18, 2006

"Investment growth is too fast, credit is too abundant and the trade surplus is too big.” – August 18, 2006

“Due to strong domestic demand, in order to improve the efficiency of macroeconomic controls, it is necessary to tighten the supply of capital, by using interest rate tools to control investment and credit demand.” – August 18, 2006

Just how risky is the yuan issue?

PBoC_QX Qiu Xiaohua, head of the Chinese National Bureau of Statistics

"Looking closely, expectations of CNY appreciation remain the main problem for economic operations, while on the surface excessively rapid credit growth is the USD’s fall. While improving the exchange rate regime, some strategic steps should be taken to boost imports and overseas investment. Faced with upward pressure on the CNY, it's as though China is playing a chess game with global capital. It faces greater international pressure, risks and problems…the nation's security and interests could be damaged if the issue cannot be handled properly.” – August 22, 2006

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