* RBA raises key cash rate to 3.25 pct from record low 3
* A$ jumps half a U.S. cent, bill futures slide
* Market pricing in at least one more hike before Xmas
* RBA first G20 c.bank to raise rates as crisis abates
* Some Asia markets move to price in more hawkish c.banks
By Wayne Cole
SYDNEY, Oct 6 Australia's central bank raised
its key cash rate by 25 basis points to 3.25 percent on Tuesday
and heralded more to come, saying it was safe to row-back on
stimulus now that the worst danger for the economy had passed.
The Australian dollar jumped to a 14-month high and
interbank futures slid <0#YIB:> as investors rushed to price in
at least one more hike by Christmas, and rates above 4 percent
in a year.
Markets elsewhere in Asia also moved to factor in
expectations for more hawkish central banks.
The Reserve Bank of Australia's (RBA) decision made it the
first of the Group of 20 central banks to hike as the global
financial crisis eases and came as a surprise to many analysts.
Markets, however, had been abuzz with speculation about a
move given the strength of recent economic data.
"The RBA had widely advertised it was near to edging up
rates from their extraordinary lows, and now it's done so,"
said Rory Robertson, interest rate strategist at Macquarie.
"It will be a gradual move from an emergency rate of 3.0
percent to a still-easy 4 percent," he added. "If everything
goes well over time, then we could get back to a more normal 5
percent in the next year or two."
It was the RBA's first increase since March 2008, but only
takes back a little of the 425 basis-points of easing delivered
when the global credit crisis was in full swing.
Indeed, by any historical measure, policy is still very
accommodative in Australia, something noted by RBA Governor
Glenn Stevens in his post-meeting statement. [ID:nRBA]
"With growth likely to be close to trend over the year
ahead, inflation close to target and the risk of serious
economic contraction in Australia now having passed, the
board's view is that it is now prudent to begin gradually
lessening the stimulus provided by monetary policy," wrote
FIRST AMONG EQUALS
The move by the RBA puts it far ahead of most major
developed nations, which show little if any inclination to
tighten. Rates in the United States, the euro zone, Britain,
Canada and Japan are all at or under 1.0 percent. For a graphic
of rates see:
But investors took a different view in some Asian markets.
Korean bond futures tumbled, Indian swap rates and yields rose
and in Singapore, which has a twice-yearly policy review on
Monday, interbank rates fell in preparation for more hawkish
leanings from monetary policy makers after the RBA decision.
"This is a surprise move, evidently, and raises the chance
that other central banks will follow suit perhaps sooner than
anticipated," HSBC economist Frederic Neumann said in a
"First on the list is Korea and we see a greater chance now
of a hike this quarter rather than the next, with Taiwan,
perhaps surprisingly, coming next in Asia."
The RBA's pre-emptive policy largely reflects the strengths
of Australia's economy, which boasts a sound banking system and
strong demand from China for its commodity exports. Australia
was the only developed nation to grow in the first half of this
That helped Treasurer Wayne Swan sound sanguine on what was
be an unpopular move in a country obsessed with home ownership.
"The Australian economy is outperforming other advanced
economies and I guess many economists will see the decision
today as a consequence of economic recovery," he told
So successful has policy been that the RBA had begun to
worry about over-stimulating the economy, particularly house
prices which have climbed to record highs in recent months.
"We think the tightening has been brought forward as the
RBA wishes to lean against potential asset bubbles," said
Annette Beacher, a senior strategist at TD Securities in
"House price data will be closely watched by the markets
for hints of the pace of further RBA tightening," she added.
For now, investors were pricing in around a 75 percent
chance of a further rise to 3.5 percent in November, and a
reasonable probability of rates at 3.75 percent in December.
Overnight indexed swap rates AUDOIS were implying rates
of 4.21 percent in one year, up from 4.14 percent before the
RBA announcement and 3 percent just a few months ago.
"We've got what looks like a gradual tightening process in
train, probably by another 25 basis points next month, and then
another couple of times early next year," said Warren Hogan,
chief economist at ANZ.
"They will probably get rates up to 4 to 4.25, and then
they will pause," he added. "You may not see rates back to the
5 to 6 percent level until well into 2011."
> TEXT - Reserve Bank of Australia statement
> What the analysts say
> Aussie dollar hits 14-mth peak after rate rise
> Australia rate changes since 1990
> Australia rate rise eases pressure on Korea
(Editing by Neil Fullick and Mark Bendeich)