Iron Ore Price Increase Supports Case For Higher Interest Rates

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By Rudi Filapek-Vandyck

Commonwealth Bank economist Joseph Capurso notes today that when the Reserve Bank of Australia recently increased interest rates the bank cited strong increases in commodity prices as a major factor in that decision given these increases boost incomes and spending.

The latest Statement on Monetary Policy, published by the RBA last week, reveals that the Reserve Bank had taken a 10% increase in iron ore prices for the coming year into account.

In light of recent developments, with both Companhia do Vale Rio Doce (CVRD) and Rio Tinto (RIO) achieving price increases for iron ore fines of 19%, almost double what the RBA was expecting, and a federal budget which is widely seen as providing a further stimulus to Australian wallets (and thus spending), Capurso now suggests the case for another rate rise in Australia is further increasing.

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