Australia lifts interest rate to 3.75%
SYDNEY, Australia — AUSTRALIA’S central bank raised its key interest rate yesterday by a quarter percentage point for the third month in a row as the country’s economy rebounds from the global downturn.
Most analysts had predicted the move by the Reserve Bank of Australia, which takes the cash rate to 3.75 per cent. In October, Australia became the first major economy to raise interest rates since the outbreak of the financial crisis when the bank hiked its key rate by a quarter point from a 50-year low.
Australia has weathered the global economic slump better than most, largely due to 42 billion Australian dollars (US$39 billion) of government stimulus spending and strong demand from China and other Asian nations for its iron ore and other mineral resources.
“In Australia, the downturn was relatively mild, and measures of confidence and business conditions suggest that the economy is in a gradual recovery,” Governor Glenn Stevens said in a statement explaining the rate decision.
“The effects of the early stages of the fiscal stimulus on consumer demand are fading, but public infrastructure spending is starting to provide more impetus to demand,”
he said.
The US Federal Reserve, meanwhile, has kept its benchmark rate near zero for almost a year and has given no indication it plans to lift that rate anytime soon.
In November, the Australian central bank more than tripled this year’s growth forecast to 1.75 per cent from the 0.5 per cent it predicted in August, and raised its 2010 forecast to 3.25 per cent from 2.25 per cent.
Treasurer Wayne Swan called the Australian bank’s decision unsurprising and inevitable.
“Rate rises are never comfortable for people, but I do believe the Australian people understand that rates can’t stay at 50-year lows forever,” Swan told reporters in Canberra.
Stevens said there have been early signs of improvement in the jobs market and the unemployment rate seems likely to peak at a considerably lower level than previously expected.
“With the risk of serious economic contraction in Australia having passed, the Board has moved at recent meetings to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker,” Stevens said.
