Wednesday, May 04, 2011

Australia was one of the first...

...countries to begin raising interest rates when they felt the "all clear" signal was in from global macro-economic conditions. I debated this with colleagues at the time (some of whom had similar opinions and applauded the return of monetary disclipline), and was concerned this would have grave effects for its economy going forward.

May 4 (Bloomberg) -- The cost of insuring debt of Lend Lease Group, Australia's biggest construction company, has doubled relative to Asia-Pacific developers in the past year as the highest interest rates in the developed world take a bite out of house prices and slow construction of new homes.
Five-year credit-default swaps on Lend Lease's bonds rose 47 basis points since May 2010 to 182 basis points, compared with an 8 basis-point rise for an index of 12 developers and construction companies in the region, CMA prices show. Moody's Investors Service said last month it may cut the credit rating of Leighton Holdings Ltd., Australia's largest engineering company, as poor weather delays projects and labor shortages affect the industry.
While concerns property prices will crash have abated, interest rates at 4.75 percent compared with near zero in the U.S. are slowing growth in a housing market identified by Demographia as the least affordable in the English-speaking world. Australian home prices dropped 1.7 percent in the three months to March, the biggest decline since the third quarter of 2008, a report showed this week.

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