AUS: In an unexpected move, the RBA raised its Overnight Cash Rate by 25bps to 3.25%, the first such move since March 2008. The RBA in its Monetary Policy Statement appeared very positive about the global economy as it began the MPS stating, “The global economy is resuming growth. With economic policy settings likely to remain expansionary for some time, the recovery will likely continue during 2010 and forecasts are being revised higher.”. About the domestic economy, the Bank expects private investments to be stronger than expected and growth in 2010 to be closer to trend. The RBA had in August revised its growth forecast for 2009 from contraction to +0.5%. It now expects growth to accelerate to 2.25% in 2010 and to 3.75% in 2011. The Bank considered risks of late 2008 and early 2009 along with the basis for a low interest rate setting to have now passed. In its MPS, the RBA said, “With growth likely to be close to trend over the year ahead, inflation close to target (near the bank’s target range of between 2-3%) and the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy. This will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.”

It was a foregone conclusion that among the major Global Central Banks, the RBA would be the first to raise interest rates, but what the markets had not priced in was how soon would it do so. Today’s decision was certainly unexpected as much of the market was pricing in a rate hike in early Q1 2010, but the Aussie economy has demonstrated better resilience during the recession than her Anlgo-Saxon peers, which has added weight to the RBA’s decision. On a cautious note though, the Bank’s concerns on inflation under current circumstances may have come a trifle too soon, but the Aussie Dollar is unlikely to mind its continued appreciation and help Australia become the new ‘financier of choice’ for the Chinese trade surplus.

UK: The Halifax House Price Index rose 1.6%mom in August, the third straight monthly rise in the index, though it remained lower by 7.4% on an annual basis. With this monthly gain, the average price of a home in the UK now stands at GBP163.5k, higher by 1.7% since the end of 2008 and comparable to the price level in mid-2005. The proportion of disposable earnings devoted to mortgage payments has fallen significantly over the past two years. Mortgage payments as a percentage of disposable income have now fallen from a peak of 48% in Q3 2007 to 30% in the same quarter in 2009.
UK: Industrial Production fell 2.5%mom in August after having risen 0.5%mom in the previous month, but output remained lower by 11.2%yoy, a faster pace of output decline compared with the 9.3% fall in July. Manufacturing output was down 1.9% over the month in August, worse than market expectations of a 0.3% monthly increase and down 11.3% over the year. The index level of manufacturing (at 87.8) itself fell to the lowest since 1992. Oil and gas production plunged 7.7% over the month to be down 9.5%yoy, while mining output fell 7.3%mom and 12.2%yoy. The drop in manufacturing over the month was the biggest monthly fall since the beginning of the year as all 13 industrial categories declined. Among the main industrial groups, output of consumer durables eased nearly one percent in August, while that of capital goods was down 1.6%mom.