The contrast between still growing Asia and faltering America was underlined again yesterday.
Two Asian area central banks lifted interest rates yesterday.
Australia of course was the first, India the second.
Both central banks cited domestic pressures on inflation as the main reason for the rises.
But the Reserve Bank of India also drew attention to fears that a new round of quantitative easing in the US and elsewhere could flood emerging markets with fresh capital inflows, putting further pressure on asset prices and currencies.
The RBA produced its 4th rate rise this year, an increase of 0.25% to 4.75, a move that brought an immediate rate gouge from the Commonwealth Bank with an increase in its mortgage rates of 0.45%.
Both moves saw the Australian dollar jump sharply by around a cent to regain parity with the greenback for the second time in a month.
It hit a high of $US1.0024, within sight of the $US1.003 hit last month. It raced to 99.8 US cent within minutes of the 2.30 pm statement from RBA Governor, Glenn Stevens and then climbed over the parity mark.
It was trading at 99.93 USc this morning.
And The Reserve Bank of India lifted rates late yesterday afternoon for a sixth time as the central bank and the government struggle to control strong inflation.
The two moves also came two weeks after the People’s Bank of China surprised with a rate rise of its own, the first for three years.
Yesterday’s increases also came ahead of the decision tomorrow morning, Australian time, from the US Federal Reserve on whether it will move to another round of spending to try and support the weakening US economy.
And central banks in the UK and the European Central bank meet Thursday night, but are not expected to move on rates or monetary easing, even as the German economy continues to grow more quickly than thought and Britain’s economy shows renewed strength.
In Australia, RBA Governor, Glenn Stevens surprised with a rate rise after also surprising on October 5 by failing to lift rates, as had been widely expected by the market.
The RBA has now raised rates seven times since October last year when they hit a 49-year low of 3%.
Australia was the first of the major economies to start tightening monetary policy after the GFC.
The RBA’s accompanying statement said the economy had been subject to a "large expansionary shock" from the high terms of trade and has "relatively modest amounts of spare capacity".
Looking ahead the risk of inflation rising again over the medium term remains, the statement said.
Australia’s underlying annual inflation rate, the RBA’s preferred measure as it removed volatile price movement, was 2.4% in the September quarter.
That was in the middle of the central bank’s inflation target band of 2%-3%.
The full statement was longer than the one issued after the October 5 meeting, and contained very different language, especially in the important final paragraph.
"The global economy grew faster than trend over the year to mid 2010. Global growth will probably ease back to about trend pace over the coming year as strong recoveries in the emerging world give way to a more sustainable pace of expansion and growth remains subdued in the United States and Europe.
"At the same time, concerns about the possibility of a larger than expected slowing in Chinese growth have lessened recently and most commodity prices have firmed, after a fall earlier in the year.
"The prices most important to Australia remain at very high levels, with the result that the terms of trade are at their highest since the early 1950s.
"The turmoil in financial markets earlier in the year has abated, though sentiment remains fragile.
"Information on the Australian economy indicates growth around trend over the past year.
"Public spending was prominent in driving aggregate demand for several quarters but this impact is now lessening.
"While there has been a degree of caution in private spending behaviour thus far, the rise in the terms of trade, which is now boosting national income very substantially, is likely to lead to stronger private spending over the next couple of years, especially in business investment.
"Asset values are not moving notably in either direction, and overall credit growth remains quite subdued at this stage notwithstanding evidence of some greater willingness to lend.
"The exchange rate has risen significantly this year, reflecting the high level of commodity prices and the respective outlooks for monetary policy in Australia and the major countries. This will assist, at the margin, in containing pressure on inflation.
"The demand for labour has continued to firm. While the labour market is not as tight as in 2007 and 2008, some further strengthening would appear to be in prospect, judging by the trends in job vacancies.
"After the significant decline last year, growth in wages has picked up somewhat, as had been expected. Some further increase is likely over the coming year.
"Given these conditions, the moderation in inflation that has been under way for the past two years is probably now close to ending.
"Recent information suggests underlying inflation running at about 2½ per cent, with the CPI inflation rate a little higher due mainly to increases in tobacco taxes.
"Both results were helped somewhat in the latest quarter by unusual softness in food prices.
"Inflation is likely to rise over the next few years. This outlook,
