Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Disclaimer: The Parliamentary Library does not warrant or accept liability for the accuracy or usefulness of the transcripts. These are copied directly from the broadcaster's website.
US rate rise hits Australian markets -

View in ParlViewView other Segments

US rate rise hits Australian markets

Reporter: Michael Rowland

TONY JONES: The Australian share market has suffered its biggest one-day fall in over a year with
investors spooked by rising US interest rates. The market fell more than 60 points after the US
Federal Reserve increased rates for the seventh consecutive month, citing fresh concerns about
inflation. The rate rise also sent the Australian dollar tumbling, placing greater pressure on
local interest rates. More from finance correspondent Michael Rowland.

MICHAEL ROWLAND: The US rate rise was not unexpected. Federal Reserve Chairman Alan Greenspan has
been flagging successive rate hikes for the best part of a year. But while the 0.25 per cent
increase was widely anticipated, some of the associated rhetoric from the US Central Bank took
financial markets by surprise.

SAUL ESLAKE, ANZ CHIEF ECONOMIST: Well, the clear implications are that US interest rates will rise
further and possibly faster than most people are currently thinking.

MICHAEL ROWLAND: Causing the most heartburn was the Fed's observation that "pressures on inflation
have picked up in recent months and pricing power is more evident".

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: They gave us a little bit of drama by adding
in the recognition that, hey, prices have been rising and there is a little bit of pricing power. I
think that was taken by the markets to mean they want a little bit of elbow room going forward
should they ever want to diverge from this measured pace and maybe go a little bit quicker.

MICHAEL ROWLAND: The prospect of much higher US interest rates putting the screws on the global
economy rattled investors everywhere. The US stock market plunged to eight-week lows, Asian
exchanges took a dive, and the Australian market recorded its biggest one-day fall in more than a
year. Just as ominously, the Australian dollar lost more than 0.33 cents as the greenback surged in
anticipation of higher US rates. A falling dollar is something the Reserve Bank would treat with
great concern.

SAUL ESLAKE: If we were to find ourselves in the circumstances of a rapid fall in the Australian
dollar - and that could be a possibility if the market starts to think US interest rates are going
to rise a lot further - then the banks' concern about domestic inflation would be magnified by the
possibility of additional inflationary pressures coming through rising rather than falling prices
for imports.

MICHAEL ROWLAND: The jury's still out on whether the RBA will raise rates again, but the Federal
Treasurer has been very quick to dismiss any parallels with the United States.

PETER COSTELLO, FEDERAL TREASURER: The US is an economy coming out of recession. Official interest
rates were abnormally low, and now they are being moved back to more neutral areas, more neutral
levels. It is quite different to Australia. Australia was never a recessionary economy. It was
never. We avoided the US recession of 2001-2002, and as a consequence our monetary policy has been
more stable.

MICHAEL ROWLAND: Reserve Bank Governor Ian Macfarlane certainly wasn't dropping any hints on
interest rates when he fronted a business conference in Sydney late today. He could have plenty to
say, though, after next month's RBA board meeting Michael Rowland, Lateline.