Tanzania raised its inflation target because of increasing oil and food costs, while highlighting that a bumper crop may prevent price growth from accelerating further.
The east African nation is targeting inflation of 7 percent by June, compared with an earlier objective of 6.5 percent, Finance Minister Mustafa Mkulo said in an interview today in the northern city of Arusha.
While corn prices have doubled in the east African country this year, “rising food prices aren't alarming for Tanzania because we are producing most of that food ourselves,'' he said.
Food prices in Tanzania have increased because of shortages in isolated districts that are difficult to access, and low stocks before the start of the annual harvest next month. Improved rainfall in key crop-growing areas should result in a higher output of corn, rice and beans, the nation's staples, in most parts of the country this year, Mkulo said.
Annual inflation in Tanzania accelerated to 9 percent in March, from 8.9 percent in February, as food prices climbed 11.2 percent in the year, according to data released by the National Bureau of Statistics last week.
Rising food prices are creating the biggest challenge the UN World Food Program has faced in its 45-year history, “threatening to plunge more than 100 million people on every continent into hunger,'' the agency said on April 22. Global food prices surged 57 percent last month from a year earlier, according to the UN, and the World Bank warns civil disturbances may be triggered by rising food prices in 33 countries.
Shortages, Hunger
Tanzania's ability to meet domestic consumption needs may shield it from the type of food shortages and hunger affecting other parts of the developing world, such as Haiti and Egypt, Mkulo said. The country will announce measures in the budget to boost agricultural productivity, including subsidies for fertilizer and other farm inputs, he said.
The country's economy will expand 7.3 percent in the year through June, 7.8 percent in the 12 months through June 2009 and as much as 9.2 percent in the year through June 2011, Mkulo said. He wouldn't provide reasons for the expected acceleration in growth, saying only that details will be announced in the national budget to be published in the week of June 10.
“If we reach that, we think our plan on the Millennium Development Goals might be achieved,'' Mkulo said.
The Millennium Development Goals are United Nations-backed targets that include halving extreme poverty and halting the spread of the HIV virus by 2015.
A New York judge dismissed counterclaims against Clear Channel Communications Inc (CCU.N: Quote, Profile, Research) on Friday in a lawsuit over the funding of a $20 billion buyout of the radio station operator.
The private equity buyers — Thomas H. Lee Partners and Bain Capital Partners, had sued a group of banks in New York and Texas courts — seeking to force them to fund the deal.
Clear Channel joined the buyout firms in the Texas suit, but was not a plaintiff in the New York case. The banks had filed several counterclaims against both Clear Channel and the buyout firms.
The judge on Friday dismissed the counterclaims against Clear Channel, but said the counterclaims against the buyout firms would continue. The buyout firms must answer those counterclaims within 10 days, the judge said in the ruling. A copy of the ruling was obtained by Reuters.
“We are grateful that Justice Freedman sent our case back to Texas where it belongs,” Clear Channel said in a statement.
Clear Channel had agreed to be acquired at the height of the private equity boom last year. The credit markets has changed significantly since then, causing the cost of financing leveraged-loan debt to surge.
The banks were to provide more than $22 billion financing and earn more than $400 million in fees, but they balked when the debt markets deteriorated and asked for the terms of the deal to be changed, according to a copy of one of the suits.
“The banks can have their lawyers churn out as many motions and briefs as they want, but ultimately this case boils down to a simple question of right and wrong, and they will face a jury in Texas to decide that question,” Clear Channel said.
The U.K. economy grew at the slowest pace since 2005 in the first quarter as the seizure in credit markets hurt banks and falling house prices threatened consumer spending.
Gross domestic product rose 0.4 percent in the three months through March, the least since the first quarter of 2005, the Office for National Statistics said in London today. The result matched the median forecast of 35 economists in a Bloomberg News survey. The economy expanded 2.5 percent from a year earlier.
Financial services expanded at the slowest pace in five years as Royal Bank of Scotland Group Plc and HSBC Holdings Plc led writedowns among U.K. banks and added to global losses of almost $309 billion. With the worst housing slowdown since 1992 adding to recession risks, the Bank of England has cut interest rates three times and tried to ease strains in the mortgage market.
“We expect the economy to slow, and that will dominate the outlook for inflation and lead to further cuts in interest rates in due course,'' Nick Bate, an economist at Merrill Lynch & Co. who used to work at the U.K. Treasury, said in an interview on Bloomberg Television. “We're not looking for a recession. You can't rule it out.''
Services grew 0.6 percent in the first quarter, the least since the same quarter in 2005, the statistics office said. Overall industrial production, which includes oil and gas extraction and utilities, dropped 0.1 percent, masking a 0.5 percent increase in factory output, the statistics office said.
Rate Cuts
Government bonds pared declines, with the yield on the two- year note at 4.58 percent, compared with 4.5 percent yesterday. The pound rose as high as $1.9885 after the report and was at $1.9841 at 12:55 p.m. in London. It was at 78.66 pence per euro compared with 79.45 pence yesterday.
The central bank's benchmark interest rate reached a six-year high of 5.75 percent in July. Since December, policy makers have reduced it three times to 5 percent to avert a recession.
Support for Prime Minister Gordon Brown has waned as slowing growth hurts the reputation built up during his 10 years as finance minister. While Brown's ruling Labour Party has presided over the longest stretch of growth in at least a half century, the International Monetary Fund now predicts the economy will expand just 1.6 percent this year, the least since 1992.
Poured Money
“Gordon Brown failed to fix the roof when the sun was shining,'' Conservative George Osborne said last week. Support for the party now trails the opposition Conservatives by 18 points, more than at any time since 1987, according to a YouGov Plc poll published today.
Brown poured money into schools and hospitals during his time as Chancellor of the Exchequer, leaving Britain with a budget deficit that the European Commission says will reach 3 percent of gross domestic product this year, three times the average in the euro region. He also presided over a housing boom that encouraged consumers to take on record debt.
The first quarter annual growth rate published today is still faster than the fourth-quarter readings of 2.2 percent in Europe and 2 percent in Japan, and matches the figure for the U.S.
Expansion in business services and finance, which make up 28 percent of the economy, was 0.4 percent, the weakest in almost five years, the statistics office said. As writedowns stemming from the U.S. subprime collapse hurt banks' earnings, the Centre for Economic and Business Research Ltd. estimates almost 20,000 job losses will be cut in London's financial-services industry over the next two years.
Depleted Capital
Royal Bank of Scotland, the U.K.'s second-biggest lender, said April 22 it will sell 12 billion pounds ($23.7 billion) of new shares to investors to boost capital depleted by further writedowns.
The global jump in credit costs is also hurting home values, an engine of growth over the past decade, as mortgage lenders withdraw their best offers and raise interest rates.
U.K. home-loan approvals fell to the lowest in a decade in March, the British Bankers Association said this week. House prices declined 2.5 percent last month, the most since 1992, according to HBOS Plc.
Chancellor of the Exchequer Alistair Darling is trying to kick-start mortgage lending, which seized up as writedowns and credit losses from U.S. housing market turmoil climbed above $290 billion.
The Bank of England, backed by the Treasury, on April 21 offered to swap around 50 billion pounds in government bonds for mortgage-backed securities to help financial institutions fund their businesses.
Housing Slump
The Bank of England's decision to cut interest rates on April 10 produced the first three-way split in almost two years as policy makers debate the economic outlook, with David Blanchflower voting for a bigger cut and Andrew Sentance and Timothy Besley wanting no change.
Blanchflower said the prospect of a “marked slowdown'' warranted the first half-point interest-rate cut since 2001. The majority voted for a quarter-point reduction, while Sentance and Besley argued for no change because of the risk higher consumer prices may get entrenched in the economy.
Inflation has exceeded the bank's 2 percent target for six months, and Chief Economist Charles Bean said last week it's “likely'' to match a decade-high above 3 percent in the second half of the year. Crude oil rose above $119 per barrel this week for the first time, and rice climbed past $25 per 100 pounds.
Growth also showed few signs of faltering until now. Retail sales rose 2 percent in the first quarter, the most since 2004 for the first three months of the year. While consumers have record debt of 1.4 trillion pounds, mortgage arrears and possessions are still low and employment is rising, policy makers said this month.
“We expect the retail sales number to slow,'' said Merrill's Bate. “There are many reasons to expect the U.K. consumer will pare back on spending. The services sector is highly exposed to the domestic economy.''
Japan's consumer prices rose at the fastest pace in a decade in March as companies passed on higher costs of gasoline and food to protect profits.
Core prices, which exclude fresh fruit, fish and vegetables, climbed 1.2 percent from a year earlier after gaining 1 percent in February, the statistics bureau said in Tokyo today.
Bonds fell as traders increased bets that the Bank of Japan will raise interest rates from 0.5 percent later this year to quell inflation. Governor Masaaki Shirakawa and his colleagues will probably stick to their policy of gradually increasing borrowing costs in their twice-yearly outlook next week, former central bank official Masaaki Kanno said.
“Core prices will continue to gain, spurred by crude oil and food,'' said Kanno, now chief economist at JPMorgan Securities Japan Co. in Tokyo. “The Bank of Japan will probably suggest it maintains the basic stance of normalizing monetary policy and will raise interest rates eventually unless the external environment deteriorates.''
The yield on Japan's five-year bond rose 15.5 basis points, the most in more than four years, to 1.2 percent as of 11:30 a.m. in Tokyo. The yen traded at 104.22 per dollar from 104.34 before the report. The gain in core prices matched the median estimate of economists surveyed.
Expectations Evaporated
Expectations that the bank will cut the key rate, the lowest among major economies, evaporated in the past month.
Investors see a 66 percent chance of a rate increase by December compared with 38 percent before today's report, according to JPMorgan Chase & Co. calculations. As recently as March 20, traders priced in a 71 percent likelihood of a cut.
The central bank will probably increase its projection for core-price increases from 0.4 percent in the outlook report on April 30, economists say.
“The Bank of Japan will probably warn that costlier commodities and food may accelerate price increases more than expected,'' said Junko Nishioka, a senior economist at ABN Amro Securities in Tokyo. “The bank's message will be, `we'd like to resume normalizing interest-rate levels eventually.'''
Still, economists also predict policy makers will lower their growth forecast from 2.1 percent for the year ending March 2009. Costlier oil and commodities are squeezing companies and households, smothering growth just as a U.S. slowdown cools Japan's export-led expansion.
Bad Inflation
Economic and Fiscal Policy Minister Hiroko Ota said Japan's inflation “isn't at all a good thing'' because it's being driven by higher energy prices rather than demand. The country is still struggling to stamp out deflation, she said today.
Core consumer prices resumed rising in October after declining for eight months. They either hovered near zero or fell since March 1998, when an increase in the country's sales tax pushed gains to 1.8 percent.
Food accounted for a third of the increase in core prices last month, and energy contributed more than half. Excluding food and energy, prices rose 0.1 percent, the first increase since August 1998.
Kagome Co. said this week it will raise prices of vegetable and fruit drinks to reflect higher costs of ingredients and packaging materials.
Bank of Japan board members “are unlikely to underestimate a rising trend in inflation,'' said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. Should financial markets stabilize and the U.S. recession remain contained, “we do expect the BOJ to try and squeeze in one more rate hike before year-end and resume monetary tightening more forcefully next year.''
Stagnant Wages
Inflation may be contained because stagnant wages have made households reluctant to pay more for goods and services. Wages fell at the fastest pace in three years in 2007.
The Bank of Japan “seems reasonably relaxed about the inflation numbers because there's no sign it's feeding into wages demand and creating an inflationary spiral,'' said Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo. The bank “isn't going to be doing anything for the remainder of this year.''
Core prices climbed 0.3 percent in the year ended March 31, the government said, the quickest rate in a decade. Bank of Japan policy makers consider consumer prices to be stable in a range between zero and 2 percent.
Tokyo's core prices, a harbinger of the nationwide index, rose 0.7 percent in April from a year earlier, following a 0.6 percent gain in March. Inflation in the capital accelerated even after the expiry of a gasoline tax made the fuel cheaper.
The government will reinstate the tax on May 1, the Yomiuri newspaper reported today, citing a government official it didn't identify by name.
Growth in European service industries from airlines to financial services unexpectedly accelerated in April, lending weight to the European Central Bank's threat to raise interest rates.
Royal Bank of Scotland Group Plc said a preliminary estimate of its services index rose to 51.8 from 51.6 in March. Economists expected a decline to 51.4, according to the median of 38 forecasts in a Bloomberg News survey. A reading above 50 indicates expansion.
Europe's economy is holding up even as the U.S. teeters on the brink of a recession, forcing the Federal Reserve to cut borrowing costs. ECB policy makers including Axel Weber and Juergen Stark have suggested the central bank may have to raise interest rates to curb inflation, which accelerated to 3.6 percent last month, the fastest pace in almost 16 years.
“On the consumer side we are still seeing quite strong employment growth and wage growth is accelerating quite strongly,'' said Nick Kounis, an economist at Fortis Bank in Amsterdam.
The euro has gained 9 percent against the dollar this year as the rate gap between the U.S. and Europe widens. The currency reached a record $1.60 yesterday. It initially rose on the PMI report before settling at $1.5966 at 12:30 a.m. in Frankfurt.
Export Growth
Exports from Germany, Europe's largest economy, will grow 5 percent this year, the BGA industry group said today, maintained its sales forecast in spite of the euro's gains. Over 80 percent of German exports are priced in euros, BGA President Anton Boerner said in an e-mailed statement.
Euro-region industrial orders rose 0.6 percent in February from the previous month, boosted by aircraft and other transport equipment, the European Union's statistics office said today. Economists expected a 0.4 percent decline, according to the median of 17 forecasts in a Bloomberg survey. From a year earlier, orders grew 9.9 percent.
“We have no indications for an economic slowdown, particularly when we look at our global business,'' Hannes Schwaderer, head of Intel Corp.'s German division, said April 16. “Especially small- and medium-sized companies invest very strongly in their IT infrastructure.''
That may change as the rising currency increases pressure on exporters' margins and soaring energy prices weigh on domestic demand. Crude oil rose to a record $119.90 a barrel yesterday.
Manufacturing Slows
Royal Philips Electronics NV, Europe's largest consumer electronics maker, saw first-quarter profit fall and said it will sell its loss-making North American TV division. Heidelberger Druckmaschinen AG, the world's largest maker of printing machines, missed its annual profit and sales targets.
RBS's gauge of manufacturing activity fell more than economists forecast to 50.8 from March's 52. The composite index of services and manufacturing rose to 51.9 from 51.8.
“There is some lag in transmission of the exchange-rate shock to euro-area exporters,'' said Laurent Bilke, an economist at Lehman Brothers in London. “They are just about to start to feel it.''
The credit squeeze may also curb investment. The U.S. housing slump has resulted in losses and writedowns at the world's biggest financial institutions of about $290 billion so far. That's made banks reluctant to lend, pushing up the cost of credit and threatening to slow global economic growth.
`Weathered the Worst'
UBS AG, the world's largest money manager, has “weathered the worst'' of the credit crisis, outgoing chairman Marcel Ospel said today. “The financial markets are also still far from normal, although the evidence suggests that we are gradually re- approaching normality,'' he said.
The ECB says Europe's fundamentals are “sound'' and predicts “moderate'' economic growth this year. Business confidence in Germany, Europe's largest economy, unexpectedly rose for a third month in March.
“Both investment and consumption should continue to contribute to economic expansion as profitability has been sustained, credit growth remains robust and employment conditions have improved,'' ECB Vice President Lucas Papademos said this week.
Legendary music executive Clive Davis has been replaced by Barry Weiss as chairman and chief executive officer of the BMG label group.
Parent company Sony (SNE) BMG announced the move Thursday. The 74-year-old Davis will become chief creative officer of Sony BMG. Two other BMG executives also departed in the label shakeup.
The 49-year-old Weiss oversaw several labels as president and CEO of the Zomba Label Group. He helped grow Jive Records from a small imprint to a major force with such blockbuster acts as Britney Spears, Usher, the Backstreet Boys, Justin Timberlake and ‘N Sync. Recent successes include teen sensation Chris Brown and singer-songwriter T-Pain.
As head of BMG, Weiss will oversee RCA Records, Jive, J Records, LaFace, Arista, Volcano, Verity, GospoCentric and Fo Yo Soul.
Sony BMG said that Davis will continue to work with top artists in his new position as chief creative officer Sony BMG Worldwide.
Weiss, through a representative, declined comment on the promotion, and a representative for Davis was not immediately available when contacted by The Associated Press.
The company also announced that Charles Goldstuck, Davis’ close associate and president and chief operating officer of the BMG label group, as well as Tim Bowen, Sony BMG’s chief operating officer.
Davis became BMG’s label group after successfully starting J Records and Arista Records; decades earlier, he was head of Columbia Records.
Davis has been credited with helping to launch the careers of acts like Whitney Houston, Janis Joplin and Bruce Springsteen, and breathing new life those of acts like Rod Stewart and Santana.
Alicia Keys, whose latest album "As I Am" has sold more than 2 million copies, was among his finds and recent protege Leona Lewis debuted at No. 1 on the Billboard album chart this week with more than 200,000 copies of her album sold in the first week.
Davis has also been influential in the careers of the winners of "American Idol," guiding their albums to mostly platinum successes. Last year, however, he disagreed with the direction of Kelly Clarkson’s "My December," and she publicly criticized him; the album was a flop, and she later apologized.
BMG label group is overseen by Rolf Schmidt-Holtz, CEO of Sony BMG Music Entertainment.
Bank of England Chief Economist Charles Bean said that policy makers are walking a `tightrope'' as consumer prices rise and the worldwide seizure of credit markets exacerbates the economic slowdown.
“Inflation is likely to exceed 3 percent again during the second half of this year,'' Bean said yesterday in London. “The dislocation in credit markets has worsened, but pricing pressures have also intensified. We will be unveiling new projections that take these developments on board'' in May.
The comments suggest Bean remains comfortable with the pace of interest-rate reductions by the U.K. central bank after three cuts since December to 5 percent. While speculation of falling rates to avert a recession pushed the pound to a record low against the euro this week, Bean's remarks also suggest inflation may match the highest level in a decade this year.
“So far, we have judged that a relatively modest easing in bank rate was warranted,'' Bean said. “That easing has roughly offset the rise in the cost of borrowing to households and businesses occasioned by the credit crunch, leaving the substantial fall in the exchange rate to act as the main offsetting influence on demand.''
The pound has dropped 13 percent since July against a basket of the U.K.'s major trading partners and reached a record low of 80.99 pence per euro on April 16. The declines may be “roughly'' equivalent to the effect of the pound's exit from the European Exchange-Rate Mechanism in 1992, he said. The currency traded at 79.88 pence today in London.
Market `Dislocation'
“That should go some way to offsetting the contractionary impact of the dislocation in credit markets,'' he said.
Bean predicted that bank losses from the U.S. subprime mortgage market slump may be “considerably smaller'' than the International Monetary Fund's forecast of $450 billion, if assets are held to maturity.
“We are well down the revelation path, at least in regard to losses associated with the U.S. subprime mortgage securities market,'' Bean said.
Credit costs have surged in Britain since the seizure of money markets last year, and Bean said that this has “impaired'' the transmission of monetary policy. Lenders including HBOS Plc, Barclays Plc and Lloyds TSB Group Plc have raised the cost of mortgages even after the bank's rate cuts.
“The bank is continuing to work with the relevant parties to develop approaches that will help to ease the strains,'' Bean said yesterday. Still, “growth is likely to continue to weaken this year. That in turn will open a margin of spare capacity which will help to bear down on inflation, bringing it back to the 2 percent target over the medium term.''
Inflation Risk
Record costs for oil and other commodities threaten to raise consumers' price expectations, requiring the economy to slow more than otherwise to bring inflation under control, Bean said. Inflation was 2.5 percent in February, matching a nine- month high, after gas and electricity prices rose. Oil prices climbed to a record $115.54 a barrel in New York yesterday.
Bean's forecast of a “likely'' overshoot of the government's 3 percent limit would require Bank of England Governor Mervyn King to write to the government with an explanation for only the second time since the bank's decade- long history of setting interest rates.
At the same time, slower economic expansion is likely to ease inflation, Bean said. The IMF says U.K. growth will cool to 1.6 percent this year from 3 percent in 2007, the worst performance since the end of the last recession in 1992.
`Green Light'
“They're giving the green light for further cautious easing,'' said James Shugg, an economist at Westpac Banking Corp. “Bean is saying that the slowing economy will sort out inflation. While they're worried about 3 percent, the bank sees underlying inflation slowing further.''
House prices fell the most since 1992 in March, according to HBOS. The Royal Institution of Chartered Surveyors says the number of real-estate professionals saying prices declined exceeded those reporting gains by 78.5 percentage points last month, the worst since records began in 1978.
“I am reasonably sanguine about the implications of any fall in house prices for consumer spending'' because they are both driven mainly by income expectations, Bean said.
“However, household spending growth is likely to be subdued for other reasons,'' namely slower employment growth and the limited availability of credit, Bean said. He predicted “pretty chilly'' conditions for retailers.
“The Monetary Policy Committee has to balance off the consequence of these two shocks for inflation against each other,'' Bean said. “In doing so, we are walking a tightrope.''
The index of leading U.S. economic indicators probably rose in March as cash poured into the banking system and the Federal Reserve lowered the benchmark interest rate, economists said before a report today.
The Conference Board's gauge increased 0.1 percent, the first gain in six months, after falling 0.3 percent in February, according to the median forecast in a Bloomberg News survey of 54 economists. The measure points to the direction of the economy over the next three to six months.
The improvement is a tentative signal that the economy, after deteriorating in the first six months of 2008, may not weaken further in the second half of the year. The report would indicate the Fed's rate reductions and efforts to ease the credit crisis may help mitigate the damage from the slump in subprime lending.
“A rise in the money supply should have cushioned the blow from some of the other components of the index,'' said Aaron Smith, an economist at Moody's Economy.com in West Chester, Pennsylvania. The report points toward economic “weakness that is mild in nature.''
The New York-based Conference Board, a private research group, is scheduled to issue the report at 10 a.m. Survey estimates ranged from a decline of 0.3 percent to a 0.4 percent gain.
Also at 10 a.m., the Philadelphia Fed will release its regional manufacturing gauge. Economists surveyed by Bloomberg News project the index will rise to minus 15 from minus 17.4 in March, signaling a slower pace of contraction. A similar report from the New York Fed earlier this week unexpectedly showed a return to growth.
Factory Improvement
The manufacturing components of the leading index probably contributed to the projected gain in March. The factory workweek rose by 6 minutes to 41.3 hours last month, according to Labor Department figures, and the Institute for Supply Management's measure of supplier deliveries also improved.
Seven of the 10 economic indicators that make up the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, supplier delivery times and factory hours.
The Conference Board estimates the remaining three — new orders for consumer goods, bookings for capital equipment and the money supply.
The financial components helped push the leading index higher. The biggest contributor was probably the money supply as investors poured the cash from sales of stocks and securities such as subprime-mortgage instruments into money-market funds.
Fed Action
As credit markets seized up, the Fed on March 16 gave all primary dealers in U.S. government bonds the same access to loans formerly reserved only for banks. The central bank now auctions as much as $100 billion in funds a month, making it easier to liquidate some hard-to-sell assets.
The yield curve, or the differential between the Fed's benchmark rate and the yield on the Treasury's 10-year note, also widened last month. The central bank dropped its target rate by three-quarters of a point to 2.25 percent on March 18, leading to a steeper curve.
The yield differential turned positive for the first time in February after 19 months of negative readings that subtracted from the leading index. The Fed has cut its benchmark rate by 3 percentage points since September, with two-thirds of reduction coming in the first three months of this year.
A Labor Department report today, due at 8:30 a.m., is projected to show initial jobless claims rose last week to 375,000 from 357,000 the prior week, according to the median estimate in a Bloomberg News survey of economists.
More Firings
Initial jobless claims, consumer expectations about the economy and building permits are among the components projected to detract from the leading index.
Economists surveyed by Bloomberg News earlier this month forecast the economy will not grow at all in the first half of the year. A majority of those polled projected the U.S. is, or will be, in a recession.
The Fed yesterday said economic growth slowed in nine of 12 districts since February, hurt by “anemic'' real estate markets and a slowdown in consumer spending, according to its regional business survey known as the Beige Book.
JPMorgan Chase & Co., the third-biggest U.S. bank, yesterday reported a 50 percent drop in first-quarter profit on $5.1 billion of writedowns and provisions.
Chief Executive Officer Jamie Dimon, said on a conference call with reporters that the credit-market crisis is more than halfway finished as financial firms reduce leverage, and may be as much as 80 percent over.
Australia's benchmark interest rate at a 12-year high is exerting a “significant restraining influence'' on consumers and businesses, central bank board members judged at their April 1 meeting.
Higher borrowing costs, as well as tighter credit standards for more risky borrowers, are working to “foster the moderation in demand growth that was needed to ease the pressure on inflation,'' board members said, according to the minutes released today in Sydney. Slower global economic growth and “tighter financial conditions'' in Australia are also likely to “reduce expansionary forces,'' they said.
Governor Glenn Stevens left rates unchanged two weeks ago for the first time in three months to gauge fallout from a global credit squeeze that has forced central banks around the world to cut borrowing costs. Policy makers raised the benchmark rate to 7.25 percent in March to cool the fastest inflation in 16 years.
“The board has absolutely finished raising rates, and is acknowledging the increases are working to bring down growth and inflation,'' said Joshua Williamson, senior strategist at TD Securities Ltd. in Sydney.
“From reading the minutes, it hard to get a sense of when they will cut rates. They are playing a waiting game,'' he said.
Australia's dollar traded at 92.68 U.S. cents at 12:17 p.m. in Sydney from 92.63 cents before the minutes were released. The yield on the two-year government bond fell 2 basis points, or 0.02 percentage point, to 6.15 percent.
Inflation Pressures
Annual core inflation accelerated to 3.8 percent in the fourth quarter. The government will publish the first-quarter prices report on April 23.
The central bank aims to keep annual price increases between 2 percent and 3 percent on average.
Gains in consumer prices are likely to remain “relatively high'' in the short term, and annual inflation will probably accelerate further in the first quarter, the minutes said.
Board members expect “inflation to decline over time, though they recognized that there are significant risks in both directions,'' the Reserve Bank of Australia said.
The central bank's rate increases, as well as the decision by Australian lenders to boost borrowing costs by more than the Reserve Bank this year, shows signs of slowing economic growth.
“Recent information, including through liaison sources, provided indications that domestic demand was slowing,'' today's minutes said. “Business and consumer sentiment had softened in the early part of 2008, and retail sales had slowed, as had household credit demand.''
Confidence Falters
Reports published since April 1 show home-loan approvals slumped by the most in four years in February, consumer confidence plunged in April to the lowest since 1993, and companies remained pessimistic for a third month in March as concern about the slowing U.S. economy and the global credit squeeze saw Australia's stock market record its worst first quarter since 1987.
Retail sales fell in January and February as consumers spent less on household goods and at restaurants and bars, figures showed on April 4.
The central bank will lower its forecasts for economic growth and inflation when its quarterly policy statement is released on May 9, Stevens said this month, without providing any figures. “There is at least some evidence that a moderation in demand is occurring,'' Stevens said at his half-yearly testimony before parliament's economics committee in Sydney on April 4. “That, if it continues, should in due course act to slow prices.''
Australia's central bank will lower interest rates by 46 basis points in the next 12 months, according to a Credit Suisse Group index based on trading in interest-rate swaps. The next interest-rate decision is due May 6.
“The current level of rates, as we have made quite clear, is on the high side,'' Stevens said on April 4. “At some point in time, they can be lower.''
Further gains in food prices would be “terrible'' for the world's poor and throw hundreds of thousands of them into starvation, International Monetary Fund Managing Director Dominique Strauss-Kahn said.
Governments throughout Asia, Africa and the Middle East are seeking to combat food inflation and avoid social unrest by curbing exports or lifting import duties on basic food staples such as rice. Global food prices surged 57 percent last month from a year earlier, according to the United Nations, and the World Bank warns civil disturbances may be triggered in 33 countries.
If food inflation keeps accelerating at its current rate “the consequences will be terrible,'' Strauss-Kahn told reporters at the IMF's semi-annual meeting in Washington today. “Hundreds of thousands of people will be starving, leading to a disruption in the economic environment.''
Haitian Prime Minister Jacques Edouard Alexis was voted out of office by the country's senate today after violent protests over rising food prices, news agencies reported today.
President Rene Preval, who called the no-confidence vote “unjust,'' announced a 15 percent cut in the price of rice, which had doubled this week to $70 for a 50-kilogram (110-pound) bag, Agence France-Presse reported. No replacement for Alexis was announced.
Price Outlook
Consumer-price inflation in poor or so-called developing countries will accelerate this year to 7.4 percent, compared with a January forecast of 6.4 percent, the IMF said this week. Food prices will probably remain comparatively high until at least 2015, the World Bank said in a separate report.
“Economic progress made over the last years could be destroyed,'' Strauss-Kahn said.
Rice, the staple food for half the world, has surged 96 percent in the past year, reaching a record $21.60 per 100 pounds on April 8. That's forced China, Egypt, Vietnam and India, which export more than a third of the world's rice, to curb shipments of the grain. Argentina and Russia have also sought to discourage food exports in a bid to boost domestic supplies.
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