Reserve Bank Raises Interest Rates

I noted in my post on 5 February 2010 that an interest rate rise was likely to 4.5% this year according to press reports at the time. Today the Governor of the Reserve Bank, Glenn Stevens announced a rise in interest rates to 4% from 3.75%. The RBA press release can be found here.

From Governor Glenn Stevens' statement today,

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.

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. Today’s decision is a further step in that process.

The rate interest rate rise is effective from 3 March 2010.

Reserve Bank: No Change in Interest Rates

At its meeting on 2 February 2010 the Reserve Bank Board decided to leave the cash rate unchanged at 3.75 per cent.

In a statement by Glen Stevens, the Governor of the Reserve Bank stated:

"With the risk of serious economic contraction in Australia having passed, the Board had moved at recent meetings to lessen the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker. Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point. Since information about the early impact of those changes is still limited, the Board judged it appropriate to hold a steady setting of monetary policy for the time being.

Interest rates to most borrowers nonetheless remain lower than average. If economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term."

The unchanged rate was a suprise to the market and some economists have speculated in the press that a rise later this year to above 4.5% will be required according to press reports.