Tags: Australia | Raises | Interest | Rate

Australia Raises Interest Rate to 4 Percent

Tuesday, 02 Mar 2010 07:28 AM

Australia's central bank raised its key interest rate Tuesday, the fourth increase since October, as it continues to reduce stimulus to an economy that has rapidly recovered from the global recession.

The quarter percentage point increase in the cash rate to 4 percent was widely expected by economists and financial markets after Australia's unemployment rate dropped to 5.3 percent in January.

The Reserve Bank of Australia, as the central bank is known, said interest rates for borrowers still remain lower than average despite the series of hikes that began in October.

"With growth likely to be close to 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," the bank said in a statement.

It also cited the relatively low unemployment rate and business surveys that suggested the economy will continue to expand. The central bank reiterated that the risk of serious economic contraction in Australia had passed.

National Australia Bank senior economist Spiros Papadopoulos said he expected the cash rate would be steadily increased throughout the year.

Last October, Australia became the first major economy to raise interest rates since the onset of the global financial crisis, hiking its key rate by a quarter point from a 50-year low of 3 percent.

The central bank also increased the rate at meetings in November and December but left it unchanged last month as it waited for new economic figures.

Despite the rate rises, the Australian Bureau of Statistics reported Tuesday that retail sales rose a higher-than-expected 1.2 percent in January.

Federal Treasurer Wayne Swan said rates are still at low levels and increases must be expected.

"Rates can't stay at emergency levels forever," Swan told reporters. "Rate rises are an inevitable consequence of a recovering economy that is outperforming the rest of the world."

Australia pulled through the global economic slump better than most, thanks to 42 billion Australian dollars ($37 billion) of government stimulus spending and demand for the iron ore and other minerals that Australia exports to Asian nations including China, Japan and South Korea.

Earlier Tuesday in Canberra, International Monetary Fund deputy managing director Murilo Portugal said Australia's economic outlook was "a good one."

He said Australia's resilience amid global turmoil was the result of robust demand for commodities, a flexible exchange rate, and a healthy banking sector. Timely cuts in interest rates and a sizable fiscal stimulus were also key factors," he said.

"In the coming year, Australia can continue to benefit from China's demand for commodities," Portugal said.

The IMF is forecasting the Australian economy to grow by 2.5 per cent in 2010, before accelerating to 3 per cent in 2011.

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Australia's central bank raised its key interest rate Tuesday, the fourth increase since October, as it continues to reduce stimulus to an economy that has rapidly recovered from the global recession. The quarter percentage point increase in the cash rate to 4 percent was...
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2010-28-02
Tuesday, 02 Mar 2010 07:28 AM
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