Australia May Reduce Key Rate, Macquarie's `Rate Cut Rory' Says
By Jacob Greber and Chris Young
D (Bloomberg) -- The Australian central bank's next move may be to cut its benchmark lending rate, confounding expectations for further increases, as it tries to prevent fallout from the global credit squeeze hurting growth, Macquarie Bank Ltd. said.
The ``global credit crunch may have ended the Reserve Bank's tightening cycle,'' Rory Robertson, an interest-rate strategist at Macquarie, Australia's largest investment bank, said in Sydney. Robertson was dubbed ``Rate Cut Rory'' after accurately forecasting the central bank would cut rates in 1996, betting against the market.
The Reserve Bank of Australia, led by Governor Glenn Stevens, said last week that credit market turmoil may contain inflation and slow global economic growth. Stevens left the bank's overnight cash rate target unchanged at 6.75 percent on Dec. 5, after quarter- point increases in November and August.
``The Reserve Bank is on hold for the foreseeable future, and the eventual next cash-rate move could be down as easily as up,'' said Robertson in a note to clients.
His view contrasts with that of investors. Traders are betting with 100 percent certainty that the central bank will raise interest rates by a quarter point within the next 12 months, according to a Credit Suisse Group index based on the exchange of interest-rate swaps.
`Lack of Confidence'
``My growing lack of confidence in further Reserve Bank tightening has been building for some time -- a function of the `credit crunch' that seems to be developing worldwide,'' Robertson said.
The Federal Reserve, European Central Bank and three other central banks moved in concert yesterday to alleviate a credit squeeze threatening global economic growth, in the biggest act of international economic cooperation since the Sept. 11 terrorist attacks on New York and Washington. The Reserve Bank of Australia was not involved in this.
The Fed has made as much as $24 billion available to the ECB and Swiss central bank to increase the supply of dollars in Europe. The move came after interest-rate reductions in the U.S., U.K. and Canada failed to allay concerns that banks will reduce lending.
Australia's three-month bank bill swap rate gained 5 basis points to 7.37 percent at 3:04 p.m. in Sydney, the highest since July 1996, according to data compiled by Bloomberg. The rate, which banks use to determine yields on variable-rate loans, has increased from 7.09 percent a month ago.
``That's an increase of more than 25 basis points over the past month, without any action or encouragement from the Reserve Bank,'' Robertson said. ``This increase in underlying funding costs is indicative of growing stresses across global financial markets.''
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