Australia and NZ Bank predicts central bank of Australia to raise rate soon

11:57, October 07, 2010      

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The head of Australia and New Zealand Banking Group (ANZ) on Wednesday said Reserve Bank of Australia's (RBA's) pause on interest rates will be short-lived.

Many economists have widely predicted of an interest rate on Tuesday, after the central bank, RBA governor Glenn Stevens delivered a speech last month justifying the use of interest rates to control inflation.

But the RBA has defied widespread expectations, leaving the cash rate at 4.5 percent.

ANZ chief executive Mike Smith said he was surprised by the RBA 's decision, and warned that all signs has pointed to more increases in the short-term.

"We are still in an increasing rate environment and I think that as you saw by the central bank announcement yesterday, while they didn't up rates, they certainly were anticipating there would be an increase in the foreseeable future," Smith told ABC News on Wednesday.

Smith also acknowledged that although the Australian economy was in good shape, banks were still struggling with the higher costs of borrowing.

"We are paying about 160 basis points more on deposits than we were pre-crisis, and in mortgages we are only up about 100 basis points, so something has to give at some stage," Smith said.



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