Australia-Another Interest Rate Hike?

Watch out for another Australian interest hike this week. So reports Reuters.

On November 2, the Australian government once more upgraded its economic and fiscal outlook citing a more resilient domestic economy proved when compared to 6 months ago.

Australia boasts of being the only rich nation to have avoided recession during the global financial crisis. Last month, it became the first among the Group of 20 industrialised economies to raise interest rates as a global recovery emerged.

But the government on Monday sought to play down expectations for a rapid recovery, sketching a slightly weaker recovery than the central bank has forecast, and warning voters that the budget will remain in the red for at least seven more years.

“Despite the improved outlook, the global recession has still had a marked effect on the Australian economy and challenges remain,” Treasurer Wayne Swan said in his regular November review of budget estimates and forecasts.

“The economy is expected to continue to operate below capacity for some time and unemployment is still expected to rise.”

The government upgraded all its major economic and fiscal forecasts, as expected, with the outlook for growth, joblessness and the long-term fiscal deficit brighter than it appeared back in May, when the government framed its 2009/10 budget.

The government revised its economic growth forecast to 1.5 per cent for the year to end-June 2010, up from a 0.5 per cent contraction predicted in May, though its growth forecast of 2.75 per cent for the following year falls short of the central bank’s forecast for 3.25 per cent growth in 2010/11.

The government also forecast fewer jobless than expected in May, trimming its jobless forecast to peak at 6.75 per cent in 2009/10. Previously, the peak was seen at 8.5 per cent in 2010/11.

But the government’s inflation forecast also climbed to 2.25 per cent for 2009/10, from a May prediction of 1.75 per cent. Inflationary concerns prompted the Reserve Bank of Australia last month to raise its official cash rate from a record low of 3 per cent, taking it 25 basis points higher.

The bank is expected to raise the rate by another 25 basis points on Tuesday.

The stronger growth and jobs figures will be welcome news for Prime Minister Kevin Rudd as he heads into an election year in 2010, with his government under political attack for spending too much on economic stimulus.

Rudd remains well ahead in opinion polls, and may call a snap election early in 2010 if a hostile parliamentary upper house continues to block his reform agenda. –