Interest Rates

Commonwealth Bank (ASX:CBA) and Westpac (ASX:WBC) yesterday slashed their rates for fixed home loans after predicting that the Reserve Bank's next rate will go down.

Inflation aside, Westpac (ASX:WBC) still expects interest rates to drop next adjustment.

Yesterday's inflation numbers caused economists to predict a rate hike before the end of 2011. The consumer price index rose 0.9 percent, far above the Reserve Bank's target quarterly rate. The dollar rose US1.5 cents to a record US$1.108 last night.

The Reserve Bank of Australia's resolve to cap inflation by raising interest rates has been met with concerns from business leaders. David Liddy, Bank of Queensland (ASX:BOQ) chief, has warned that an interest rate hike would hurt the economy even more.

Liddy said that Queensland's economy was already at its lowest point because of stagnant tourism and falling real estate values.

Australian interest rates rise again for the 11th time since 2002. The Reserve Bank of Australia (RBA) announced its decision to lift official interest rates today by 0.25 percentage points to 7 per cent following their meeting this morning.

So the market has got what it has been waiting for. And how did it react?

Watching and waiting. But while waiting I've taken advantage of this recent volatility to make some profits. The recent volatility in stock prices and foreign exchange rates worldwide is simply waiting for one number. The US interest rates. Currently the interest rate stands at 5 per cent. The Federal Open Market Committee (FOMC) from the Federal Reserve in the USA will determine whether or not to raise rates at their two-day meeting, ending June 29.

China hiked up their benchmark interest rates to 5.85 per cent last week, to rein in growth and inflation. Foreign Banks applauded Chinese interest rate hike as emblematic of China’s broader effort to allow market forces to play a larger role in the economy. However there is still that Chinese RMB to US dollar peg that severely constrains their ability do conduct monetary policy. The Chinese may need to release the US dollar peg, allowing the Yuan to appreciate at a faster pace to prevent an influx of speculative capital.

The Bank of England has held their interest rates steady at 4.5 per cent for the sixth month in a row, a decision widely expected by financial markets. There was no change and no surprise to the markets given there was evidence of modestly stronger economic activity and a more robust housing market in England as of late. The British Pound steadied following the release of the rate decision details after the Pound had dipped earlier in the trading session on disappointing British trade data.

The US Fed Reserve has raised interest rates for the 14th time by 25 points to 4.5 per cent. The Fed has also signaled that there is a prospect for further rate hikes to come. It was the final meeting with Greenspan who is 79 and retiring as chairman after 18 years. The new chairman is the US Senate voted White House economic advisor Ben Bernanke.

"Although recent economic data have been uneven, the expansion in economic activity appears solid," the FOMC said in a statement.

The Australian dollar opened significantly weaker on Tuesday as falling commodity prices and a narrowing interest rate spread with the US weighed on the local unit. At 7am (AEDT), the local currency was trading at US74.04¢, almost three quarters of a US cent below Monday's close of US74.72¢. During overnight trade, it hit a high of US74.71¢ and a low of US74¢.