Australia Raises the Cash Rate by 25 bps to 4.25 %

The Reserve Bank of Australia Tuesday raised its cash rate target by a quarter of a percentage point to 4.25%, effective 7 April 2010. By raising its target rate the Australia’s Central Bank is signaling its growing confidence in the economic recovery.

Here are some excerpts from the statement by Glenn Steven, Governor:

At its meeting today, the Board decided to raise the cash rate by 25 basis points to 4.25 per cent…

The global economy is growing, and world GDP is expected to rise at close to trend pace in 2010 and 2011..

Global financial markets are functioning much better than they were a year ago and the extraordinary support from governments and central banks is gradually being wound back….

Australia’s terms of trade are rising, adding to incomes and fostering a build-up in investment in the resources sector. 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 rate of unemployment appears to have peaked at a much lower level than earlier expected. The process of business sector de-leveraging is moderating, with the pace of the decline in business credit lessening and indications that lenders are starting to become more willing to lend to some borrowers. Credit for housing has been expanding at a solid pace.

Interest rates to most borrowers nonetheless have been somewhat lower than average. The Board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process.

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