Australia holds interest rate at 7.25%. - CountingPips Forex & Currency Trading Blog

April 1, 2008 - Forex Economic News

Australia holds interest rate at 7.25%.

The Reserve Bank of Australia held its official cash lending rate unchanged today at 7.25 percent. Australia had raised its interest rate by 25 basis points in each of February and March and has increased its rate four times since August 2007. Australia's cash rate is at its highest level since 1996 when it stood as high as 7.50 percent as the RBA is trying to combat inflation rates that are exceeding the RBA's inflation target of 2 to 3 percent.

Australia's Glenn Stevens, Governor of Monetary Policy, stated in the report that, "inflation is likely to remain relatively high, and both the CPI and underlying measures will probably rise further in year-ended terms in the March quarter. However, inflation should decline over time, provided demand slows as expected."

The Australian dollar has fallen against most major currencies today with the exception being the Japanese yen. The AUD/JPY, a popular carry trade pair, has jumped from 90.50 to 92.10 in trading today. A carry trade is when a trader borrows funds in a low yielding currency to invest in a higher yielding currency. The trader earns the spread between the interest rate yields while trying to avoid a decrease in the exchange rate that will erode the yield profits.

Tags: interest rate, aud, australia, rba, glenn stevens, aud/jpy, carry trade

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