Australia central bank suggests more rate hikes

SYDNEY (AP) - Australia's central bank governor said the worst of the global financial crisis is probably over for the country and suggested further rises in interest rates to contain the threat of inflation.

Australia sent ripples through international markets earlier this month when it became the first Group of 20 nation to raise interest rates since the onset of the global financial crisis.

Reserve Bank of Australia Gov. Glenn Stevens said in a speech Thursday that the very low interest rates were based on predictions that the economy would weaken more than it did. The central bank's key interest rate had been slashed 4.25 percentage points to a 50-year low of 3 percent before the Oct. 6 rise to 3.25 percent.

Stevens said "the risks of really serious economic weakness have abated" and that "Australia has had an experience that, even if labeled a recession, was a pretty mild one."

Gradual growth in the economy was likely to continue in 2010, and the bank board now had to consider the threat of rising inflation, he said.

"If we were prepared to cut rates rapidly, to a very low level, in response to a threat but then were too timid to lessen that stimulus in a timely way when the threat had passed, we would have a bias, a very serious bias, in our monetary policy framework," Stevens said in his speech to a business forum.

Other central banks have not followed Australia in hiking rates earlier than expected, reflecting it had weathered the worst global downturn in decades better than other developed countries.

Stevens said Australia had headed off the worst effects of the recession with the help of low interest rates, the government's massive stimulus spending, and economic recovery in China - Australia's largest export customer.

He said this did not mean the economy was currently "too strong," only that the "downside risks to which the board was responding earlier have not materialized."

Australia's gross domestic product grew 0.6 percent in the second quarter, accelerating from 0.4 percent growth in the previous quarter. In September, consumer confidence surged to its highest level since July 2007. Since March, Australian shares are up 50 percent.