RBA Hikes Interest Rates

Post by Sharat on November 3, 2009 · Under Australian Economy, Business News, Company News, banking, home loans, interest rates, mortgages · Comment

The Australian central bank, The Reserve Bank of Australia, in a widely expected move, hiked official interest rates by a further 25 basis points, the second such rate hike since it began tightening interest rates.

The official cash rate was raised to 3.50 per cent from 3.25 per cent following the central bank’s monthly board meeting.

This is the second interest rate hike in as many months, and will increase the average monthly payment for a $300,000 mortgage by approximately $46.

The rate increase was the second consecutive increase in as many months, since the RBA first began tightening, by raising the cash rate by 25 basis points on October 6th.

The central bank’s move was widely expected by both economists and financial market participants, though a few analysts suggested the increase could have been by as much as 50 basis points.

RBA governor Glenn Stevens said economic growth is likely to be close to trend over the year ahead and inflation close to the central bank’s two to three per cent target.

“With the risk of serious economic contraction in Australia now having passed, the board’s view is that it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker, The adjustments at the October and November meetings will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.” Mr. Stevens said in a statement.

The RBA governor said the economic climate in Australia was better than expected, as both consumer and business confidence continue to recover, coupled with early signs of improvement in the labour market. It also appears that private investment would not be as weak as earlier expected.

“Medium-term prospects for investment appear, moreover, to be strengthening. Higher dwelling activity and public infrastructure spending are also starting to provide more support to spending. There have been some early signs of an improvement in labour market conditions. The rate of unemployment is now likely to peak at a considerably lower level than earlier expected.” Mr. Stevens said.

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