RBA lifts rates to 4.0 per cent

THE RESERVE Bank of Australia yesterday decided to raise the cash rate by 25 basis points, from 3.75 per cent to 4 per cent, effective today, Wednesday 3 March.

In his statement, RBA Governor Glenn Stevens said "the global economy is growing, and world GDP is expected to rise at close to trend pace in 2010 and 2011." Mr Stevens said that whilst global financial markets are functioning much better than they were a year ago, credit conditions remain difficult in some major countries.

In Australia, Mr Stevens said "economic conditions in 2009 were stronger than expected, after a mild downturn a year ago. The rate of unemployment appears to have peaked at a much lower level than earlier expected. Labour market data and a range of business surveys suggest growth in the economy may have already been at or close to trend for a few months. There are some signs that the process of business sector de-leveraging is moderating, with the pace of decline in business credit lessening and indications that lenders are starting to become more willing to lend to some borrowers. Investment in the resources sector is very strong. Credit for housing has been expanding at a solid pace, and dwelling prices have risen significantly over the past year. New loan approvals for housing have moderated a little over recent months, however, as interest rates have risen and the impact of large grants to first-home buyers has tailed off."

"With the risk of serious economic contraction in Australia having passed, the Board moved late last year to lessen the degree of monetary stimulus that had been put in place when the outlook appeared to be much weaker. Lenders generally raised rates a little more than the cash rate and most loan rates rose by close to a percentage point," Mr Stevens said.

"Interest rates to most borrowers nonetheless remain lower than average. The Board judges that 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" and Mr Stevens said that yesterday's decision "is a further step in that process."

Visit the Reserve Bank of Australia website for more information <>.

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