Identifier
Created
Classification
Origin
08CANBERRA456
2008-05-06 06:05:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Canberra
Cable title:  

DESPITE INFLATION, INTEREST RATES UNCHANGED FOR NOW

Tags:  EFIN ECON AS 
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ZNR UUUUU ZZH
R 060605Z MAY 08
FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC 9503
INFO RUEHKO/AMEMBASSY TOKYO 3044
RUEHBJ/AMEMBASSY BEIJING 9035
RUEHWL/AMEMBASSY WELLINGTON 5309
RUEHPT/AMCONSUL PERTH 3501
RUEHBN/AMCONSUL MELBOURNE 5219
RUEHDN/AMCONSUL SYDNEY 3409
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS CANBERRA 000456 

SENSITIVE
SIPDIS

STATE FOR EEB, EAP/ANP; TREASURY FOR POGGI

E.O. 12958: N/A
TAGS: EFIN ECON AS
SUBJECT: DESPITE INFLATION, INTEREST RATES UNCHANGED FOR NOW

REF: CANBERRA 244

UNCLAS CANBERRA 000456

SENSITIVE
SIPDIS

STATE FOR EEB, EAP/ANP; TREASURY FOR POGGI

E.O. 12958: N/A
TAGS: EFIN ECON AS
SUBJECT: DESPITE INFLATION, INTEREST RATES UNCHANGED FOR NOW

REF: CANBERRA 244


1. (U) The Reserve Bank of Australia today did not raise the
official cash rate; it remains at 7.25%. Despite higher than
expected inflation (reftel),the RBA noted that the
substantial tightening since mid-2007 and "difficult"
conditions in international financial markets were acting to
restrain demand, and therefore a rate increase was not
justified at this time.


2. (U) The RBA board did not preclude future rate hikes,
stressing the "considerable uncertainty" about demand and
inflation. It noted that Australia's terms of trade
continued to rise at a faster than expected level, which add
to pressure on Australian incomes and demand despite a global
slowdown in growth. The cautionary tone contrasted with that
from the last RBA meeting in April, when it seemed to
indicate that this long round of rate hikes might be at an
end.


3. (SBU) Comment: This decision was no surprise. Inflation
is unquestionably higher than the RBA would like (at around
4%, well above the RBA's 2-3% target),but as noted the RBA
has already done a great deal of financial tightening over
the past 18 months. However if demand strengthens and
domestic inflation does not begin to drop, another rate rise
is distinctly possible. The RBA decision will be welcome
news for the Rudd Government as Treasurer Wayne Swan prepares
to deliver his first budget next week, which is being
advertised by Swan and others as one that will trim Howard
Government excesses and seek to tamp down inflation. The
RBA's warning that inflation remains a threat and further
rate hikes are possible will also undermine the statements by
Opposition Leader Brendan Nelson and shadow Treasurer Malcolm
Turnbull that Swan is inventing an inflationary threat where
there is none to justify deep cuts in federal spending. End
comment.

McCallum