Having spent one and a half years in Australia, I was waiting for this increase for awhile. Glenn Stevens, the Australian central bank governor, bet that his country is strong enough to support this increase and will be stronger. Indeed, this rise may be the first of a series and a Bloomberg survey shows that it could happen as early as November, 2nd . Nonetheless, this gamble is risky and could undermine his nation’s rebound if Australia receives another shock from the global economy.
The first country to raise interest rates is among nations such as Israel, Norway and Brazil that remained relatively isolated from the economic turmoil of the past 12 months. Of course Australia benefited from its strong trading partner, China and its hunger for its commodities but has as well reacted smartly during the crisis with its quick fiscal stimulus, and its strong banking system.
Stevens announced yesterday that Australian GDP will expand “close to trend” next year, which economists say is currently between 2.75 percent and 3 percent when in the mean time, the International Monetary Fund forecasts that the U.S. economy will expand 1.5 percent, Japan by 1.7 percent and the euro region by 0.3 percent.
Another country on list for a rate increase is South Korea, one of the fastest rebounding economies at the moment. It has already seen dangerous signs of inflation, particularly in property prices and in the value of its currency and is experiencing strong debate among policy makers over when to raise the interest rate. The Australian move will probably give those supporting a rate increase political cover.