Australian Central Bank May Raise Interest Rate to 7%

Australia's central bank will probably raise its interest rate to an 11-year high tomorrow to cool the fastest inflation since 1991.

Stevens is under pressure to add to last year's two rate increases after a report published two weeks ago showed core inflation breached the bank's 3 percent target for a second quarter. Australia would be the first developed economy to raise borrowing costs after Federal Reserve Chairman Ben S. Bernanke cut the benchmark rate to 3 percent last week in the fastest easing of U.S. monetary policy since 1990.

Economists expect Stevens will increase rates even as concern mounts that a looming U.S. recession will curb global growth. Australia's All Ordinaries Index of stocks suffered its worst monthly drop in more than 20 years in January.

The bank last increased borrowing costs on Nov. 7, two weeks after a report showed annual core inflation was 3.1 percent in the third quarter. Underlying inflation accelerated to 3.8 percent in the fourth quarter, a report showed Jan. 23. The Reserve Bank of Australia aims to keep annual price gains between 2 percent and 3 percent on average.

Australian Central Bank May Raise Interest Rate to 7%, Bloomberg
2/4/2008 6:50:17 AM