RBA raises interest rates again


The Reserve Bank of Australia has raised the official interest rate by 25 basis points to 4.5 percent. Governor Glenn Stevens said in a statement that the decision was based on forecasts for world GDP growth, which have been lately revised upwards, and strength in financial sectors.

Terms of trade rising earlier than expected and a potential build up in investment in the resource sector were seen as drivers of improved output growth. Stephens expanded on this by stating:

"Under these conditions, output growth over the year ahead is likely to exceed that seen last year, even though the effects of earlier expansionary policy measures will be diminishing. The process of business sector deleveraging is moderating, with business credit stabilising and indications that lenders are starting to become more willing to lend to some borrowers, though credit conditions for some sectors remain difficult."

Stevens also said that recent data on inflation confirms it has declined from a 2008 peak, and that in underlying and CPI terms, inflation has remained around 3 percent for the past year.

However, he warned the extent of decline from this point may not be quite as early as previously forecast, with inflation expected to be in the high range of the target zone over the year. The RBA board is aiming for an average inflation rate of 2-3 percent over time.

In a final statement yesterday, Governor Stevens said that rates for most Australians should now be around average levels. The board has repeatedly said it has intended to move rates towards more "normal" stages, suggesting a pause in interest rate rises may occur next month.

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