Finance news

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 get a free credit report.

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.''

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