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Date Published : Wednesday, February 06, 2008
Interest rates have reached their highest level for 12 years after the Reserve Bank of Australia (RBA) announced a 0.25 per cent increase to the base rate.
The RBA's decision to increase borrowing rates to seven per cent mean there has now been three rate rises since August last year and interest levels are now at their highest since the mid-1990s.
According to the RBA, inflation increased at a much higher rate than expected in the latter half of 2007 and that has put pressure on a number of other sectors of the domestic economy.
A statement from the RBA said: "The pressures in short-term money markets seen late last year have eased in recent weeks, but sentiment in international capital and equity markets remains fragile.
"In Australia, financial intermediaries have passed on higher costs to their customers over the past couple of months. There has also been some tightening of lending standards to risky borrowers, a process which may yet have further to go."
Despite the increase, analysts continue to fear more rises later in the year, if the current global uncertainty in the financial markets continues.
The RBA has noted such fears.
RBA governor Glenn Stevens told Australian Associated Press: "In the short term, inflation is likely to remain relatively high and will probably rise further in year-ended terms, though the bank expects it to moderate somewhat next year."
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