Thursday, October 8, 2009

Australia Interest Rates Increased - Stock Market Soars

Australia raised their interest rates or rather the cost to borrow money. Investors took this as a sign of hope and the stock market rallied on the news release of Australia's interest rate hike.

Why does the Interest Rate Increase Executed by the Reserve Bank of Australia Boost Investor Confidence and Hopes of Recovery?

If the derived confidence from this seemingly rise in cost to do business in the world of borrowing money seems a bit bizarre or counter intuitive you are correct. Under traditional market circumstances the rise in interest rates which directly correlates or even directly causes the cost of borrowing to increase. But even so, we are not operating under normal market conditions.

Investors see this as a sign that markets are stabilizing. Here is the reasoning:
  • Governments have kept interest rates or the cost of borrowing down to record low levels because they want to inject supply into the credit or capital markets.
  • The Australia Government's decision to raise interest rates signals the confidence of improving markets in Australia and thus part of the international economy in which all investors are a part of.
The US interest rates or cost of debt has remained and is expected to remain at very low levels.