G'Day Rates! Australia Tightens Up

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Australia’s central bank raised interest rates yesterday, beginning the unwind of their credit crunch stimulus program. They are the first nation in the G-20 to do so.

Like Norway and Brazil, Australia derives a great portion of its GDP from minerals and mining exports, and so is more concerned about inflation in the near-term than many other large nations.

This move could have dramatic ramifications for global currencies and trade.

According to the Wall Street Journal:

The divergence could cause new challenges for central banks around the world as they try to navigate a fragile and uneven global recovery. Countries experiencing faster recoveries and rising interest rates could see their currencies appreciate, something that could challenge their export sectors. Money flowing into early-recovery countries can also stoke dangerous bubbles in prices of assets such as stocks and real estate — already a concern in parts of Asia.

The article also names Israel and South Korea as the two nations that many believe could be next to tighten.  Stay tuned.

Sources:

Australia Rate Rise Poses a Global Policy Challenge (WSJ)

Reserve Bank of Australia Cash Rate Target (RBA)

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