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Reserve Bank of Australia board members considered raising the benchmark interest rate by 50 basis points for the first time in eight years this month to cool the fastest inflation in almost two decades.

“The debate focused on whether the change in the cash rate should be 25 or 50 basis points,'' the bank said in minutes from its Feb. 5 policy meeting, released today in Sydney. “The judgment was finely balanced,'' with the board deciding “the case for the 25 basis point rise was, at this time, the more persuasive.''

The Australian dollar surged to a three-month high after the minutes showed policy makers said they may raise rates again in March. Turmoil on credit and equity markets prompted the bank, headed by Governor Glenn Stevens, to limit this month's increase to a quarter point, taking the benchmark to an 11-year-high 7 percent.

“Additional tightening could be implemented at the March and/or subsequent meetings as judged necessary,'' the minutes said.

Australia's dollar rose to 92.05 U.S. cents at 4:44 p.m. in Sydney from 91.69 cents before the minutes were released. The two- year government bond yield rose 8 basis point to 7.02 percent, the highest in eight years.

The gap between the Australian and U.S. benchmark rates widened two weeks ago to 4 percentage points, the largest in more than three years, as Stevens raised borrowing costs and U.S. Federal Reserve Chairman Ben S. Bernanke cut the U.S. rate in the fastest easing of monetary policy since 1990.

`More Increases Coming'

“Members were strongly of the view that a significant slowing in demand from the pace observed through 2007 would be required for inflation to return to the target'' range of between 2 percent and 3 percent, the Reserve Bank minutes said.

“There was a case for the board to send a stronger signal of its intention to act as necessary to reduce inflation.''

February's increase was the bank's 11th quarter point move since May 2002, which has lifted the rate from 4.25 percent. Each quarter-point increase has added about A$42 ($39) a month in interest repayments on an average A$250,000 home loan.

“The Reserve Bank is now realizing that the slow and steady tightening path it has followed for the past six years has not been sufficient to contain inflationary pressures,'' said Tony Pearson, head of Australian economics at Australia & New Zealand Banking Group in Melbourne http://us-no-fax-payday-loans.com. “The message is clear — more rate rises are coming.''

Consumer Prices

The nation's consumer price index may accelerate to almost 4 percent this year as a labor shortage sparked by the lowest unemployment in more than three decades worsens, central bank Assistant Governor Malcolm Edey told business leaders in a speech in Sydney today.

Policy makers decided against a 50 basis point increase this month because “rates faced by borrowers had already risen somewhat over the summer, independently of policy action,'' the bank minutes showed.

The nation's largest banks raised interest rate by an average 15 basis points in January to recoup higher funding costs because of the global credit squeeze. Commonwealth Bank of Australia increased the interest rate on home loans by 30 basis points last week, more than the central bank's 25 basis point increase.

Australia & New Zealand Banking Group Ltd.'s Chief Executive Officer Michael Smith told the Australian Financial Review in an interview published today that he couldn't rule out further increases in lending costs to householders outside the Reserve Bank's moves. ANZ's shares fell to a 2 1/2-year low in Sydney trading yesterday.

Labor Shortage

Australia's 16-year economic expansion has cut unemployment to 4.1 percent, the lowest since 1974, worsening a labor shortage that is pushing up wages.

Inflation is being driven by “the general background of strong demand and tight capacity, as well as rises in global commodity prices,'' Edey said. There also is “some evidence very recently of higher wages growth,'' he said.

Stevens will again boost the overnight cash rate by a quarter point to 7.25 percent on March 4, according to 22 of 24 economists surveyed by Bloomberg last week. Fifteen said the bank will follow up with another increase by mid year. The Reserve Bank also raised interest rates in November and August last year.

Annual wages growth probably quickened in the fourth quarter to 4.2 percent, equaling the strongest increase since the series began in 1997, according to the median estimate of 24 economists surveyed by Bloomberg News. The wages report will be released tomorrow at 11:30 a.m. in Sydney.

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