Australia Braces For Rate Increases to Curb Inflation

Reserve Bank of Australia signaled it likely will raise interest rates to curb economic demand, boosting expectation it can tighten policy. "The risk of inflation remaining uncomfortably high for some time is considerable. Absent a further shift in economic risks to the downside, therefore, monetary policy's likely to need to be tighter in the period ahead," the central bank said in its quarterly policy statement. The outlook is in stark contrast with the position of most other major central banks. The European Central Bank is expected to cut rates soon, following the lead of the U.S., Canada and the UK. Analysts said Australia can see several rate increases this year if the Reserve Bank hopes to bring inflation within its 2%-3% target. The central bank raised its prediction for core inflation, which strips volatile elements out, to 3.75% by midyear. The bank's November forecast put the figure at 3.25%. 9 of the 20 economists surveyed by Dow Jones Newswires said they expect the bank in March to raise cash-rate target 1/4 of a percentage point to 7.25%, its highest level since 1994. Prime Minister Kevin Rudd called the bank's comments a "disturbing warning", and said the government is committed to its "war on inflation." A chief economist at HSBC said the Reserve Bank may raise rates 3 more times, especially since there's no sign domestic demand is slowing. He said they had thought 7% would be the top, and clearly it's not going to be. Separately, help-wanted advertising rose a seasonally adjusted 1.8% in Jan. from Dec., Dec. to Australia and New Zealand Banking Group Ltd. Housing-finance approvals rose a seasonally adjusted 0.1% in December from November.