The Australian economy is officially back on track with the Reserve Bank starting a series of rate rises this afternoon.
The RBA lifted its cash rate 0.25% to 3.25% and became the second major central bank after the Bank of Israel to end a campaign of emergency rate cuts to combat the impact of the credit crunch and the recession.
The Bank of Israel lifted its key rate in August by 0.25%, this today the RBA followed with the increase to apply from tomorrow.
A rebounding domestic economy, solid growth in China and the continuing international recovery, have convinced the RBA to end its campaign of rate cuts that saw a record 4.25% chopped from the cash rate in quick succession from September 2008 to last April.
“In late 2008 and early 2009, 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,” The RBA Governor, Glenn Stevens said at the end of the post board meeting statement issued at 2.30 pm.
“That basis for such a low interest rate setting has now passed, however.
“With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy.
“This will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.”
So it’s a case of situation normal, the economy is back on its normal track and its back to worrying about inflation, while keeping a weather eye on demand, jobless numbers and the global economy.
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“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 expansion is generally expected to be modest in the major countries, due to the continuing legacy of the financial crisis.
“Prospects for Australia’s Asian trading partners appear to be noticeably better. Growth in China has been very strong, which is having a significant impact on other economies in the region and on commodity markets. For Australia’s trading partner group, growth in 2010 is likely to be close to trend.
“Economic conditions in Australia have been stronger than expected and measures of confidence have recovered.
“Some spending has probably been brought forward by the various policy initiatives. As those effects diminish, these areas of demand may soften somewhat. Some types of capital spending are likely to be held back for a while by financing constraints, but it now appears that private investment will not be as weak as earlier expected.
“Medium-term prospects for investment appear, moreover, to be strengthening. Higher dwelling activity and public infrastructure spending is also starting to provide more support to spending.
“Overall, growth through 2010 looks likely to be close to trend.”
“Unemployment has not risen as far as had been expected. “