The Reserve Bank of Australia today announced that it will be increasing its cash rate to 3.25 percent, effective from October 7.
By Chris Farnell
Glen Stevens, Governor of Monetary Policy for the Bank, released a statement: “The global economy is resuming growth. With economic policy settings likely to remain expansionary for some time, the recovery will likely continue during 2010 and forecasts are being revised higher.”
The statement went on to explain that although expansion would be modest in the major countries, Australia’s Asian trading partners were expected to perform noticeably better. China has been doing well, which is having an impact on commodity markets and other economies in the region.
Stevens also pointed out that although the low demand for labour has seen a moderation in costs, unemployment in Australia has not been as bad as expected.
SIGN OF RECOVERY
Referring to cuts in the interest rate that began last September, Stevens said: “The cash rate was lowered quickly, to a very low level, in expectation of very weak economic conditions and a recognition that considerable downside risks existed. That basis for such a low interest rate setting has now passed.”
At 3 percent, the cash rate was at a 49 year low. In August the Bank of Israel became the first central bank with a developed economy to raise interest rates since September, but Australia’s rise is being seen as a more significant sign of recovery due to the size of the country’s economy.