THE global monetary policy divide is widening as the Federal Reserve, Bank of Japan and major counterparts lag behind Norway and Australia in raising interest rates, a trend that’s set to continue into 2010.

While Fed chairman Ben S. Bernanke and Bank of Japan Gov. Masaaki Shirakawa may soon unwind some of their emergency measures, JPMorgan Chase & Co. doesn’t expect a Group of Seven member to lift rates before the third quarter. The divergence may boost the currencies of those nations shifting first, with New York University professor Nouriel Roubini warning low US rates may be generating “huge” bubbles as investors borrow dollars to invest in other assets.

“The big boys are going to hold off raising rates for the foreseeable future,” said Jay Bryson, global economist at Wells Fargo Securities Llc. in Charlotte, North Carolina. “Their economies have been decimated and are going to take some time to recover even with better global growth.”

The Norges Bank, under Governor Svein Gjedrem, yesterday cited higher-than-expected inflation in pushing its benchmark rate up a quarter point to 1.5 percent and signaling steeper increases than it previously forecast. In August, Bank of Israel Governor Stanley Fischer boosted his benchmark a quarter point to 0.75 percent, while Reserve Bank of Australia Governor Glenn Stevens raised to 3.25 percent from a 49-year low of 3 percent on October 6.

They may soon be joined by other central banks with those in Asia leading the way as their economies power the globe from its recession, fanning inflation and asset gains. South Korea’s economy grew at the fastest pace in seven years in the third quarter, while Indian central bank Governor Duvvuri Subbarao has prepared investors for higher rates by telling banks on October 27 to set aside more cash in government bonds to restrain credit.

By contrast, Reserve Bank of New Zealand Governor Alan Bollard Thursday kept his benchmark rate at a record low of 2.5 percent and said he won’t increase borrowing costs until the second half of 2010 because the nation’s economy needs ongoing stimulus to ensure it emerges from a recession.

Investors will be attracted to the currencies of those economies with rising interest rates, said Mansoor Mohi-uddin, Zurich-based chief currency strategist at UBS AG. He predicts Norway’s krone will outperform the euro, while the Australian dollar will best Canada’s.  (Bloomberg)