The Reserve Bank of Australia has lifted the official interest rate for a third consecutive month by 25 basis points, with the cash rate now at 3.75%.
The rise was expected by economists, with many saying the RBA would lift rates despite the start of the Christmas season due to increased economic activity and rising prices in the housing market.
Governor Glenn Stevens said the decision was made due to what the board felt was a quicker than expected recovery in the domestic economy, along with a prediction for “good growth” in 2010.
“Financial markets have improved considerably during 2009, notwithstanding periodic setbacks, and capital flows into Asia and other emerging market regions have been picking up.”
“In Australia, the downturn was relatively mild, and measures of confidence and business conditions suggest that the economy is in a gradual recovery. The effects of the early stages of the fiscal stimulus on consumer demand are fading, but public infrastructure spending is starting to provide more impetus to demand.”
Stevens also said the prospects for private demand, including business investment, remain strong with signs of improvement in the labour market. The fall in inflation since last year has been noted, with the rise in the exchange rate also recognised as a pressure on prices.
While Stevens noted that business credit has fallen, “the decline in credit has been concentrated among large firms, which generally have had good access to equity capital and, more recently, to debt markets”.
He also said the risk of serious economic contraction has passed, with plans to continue withdrawing monetary stimulus.
“These material adjustments to the stance of monetary policy will, in the Board’s view, work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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