Australia’s benchmark interest rate, at 6.50%, is already the highest in the industrialized world, after New Zealand. Ignoring the pleas of the Treasurer, the Central Bank of has all but decided to hike rates even further into the stratosphere at its next meeting.  The country is in a bit of a pickle, since a booming economy and the consequent inflation seems to demand a rate hike.  At the same time, this rate hike will ensure that Australia continues to be on the receiving end of Japanese carry trades, and this is precisely what irks Peter Costello, Australia’s Treasurer. In other words, the world’s massive economic imbalances will only be exacerbated by an Australian rate hike, but this may be a moot point as far as the Central Bank is concerned.  The Sydney Morning Herald reports:

Instability on global financial markets between now and the next Reserve Bank board meeting on Melbourne Cup day is seen by economists as the only force that could stay the bank’s hand from raising rates to the highest level in a decade.

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