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» Articles - RBA Raises Cash Rate Target
RBA Raises Cash Rate Target 25 Bps To 4.0%
The Reserve Bank of Australia (RBA) raised its cash rate target a quarter of a percentage point to 4.00% Tuesday as the economy accelerates and labor market conditions tighten rapidly. The policy tightening, which was forecast by a majority of economists, follows a pause in February.
Economists expect the RBA will raise rates a number of times in 2010 as it normalizes rates and confronts an economy reinvigorated by strong commodity demand from Asia.
The hike keeps the RBA well out in front of its Group of 20 peers, most of which still have rates set close to zero and continue to face weak economies. Having avoided recession in 2009, the RBA was the first central bank in the G20 to start raising interest rates, with an unprecedented string of hikes in October, November and December 2009. RBA Governor Glenn Stevens said last week rates are 50 to 100 basis points below normal.
Australia's economy is starting a new upswing, with already-low unemployment creating concerns about the availability of workers as demand heats up in areas of the economy like mining and energy.
Unemployment fell to 5.3% in January, not far above levels considered full employment for the economy.
The RBA has warned that the resources boom will draw skilled labor away from other areas of the economy, sparking wage pressures. A rebound in construction and an investment splurge in the mining sector are expected to restore growth in the economy back to historic averages by the end of 2010.
The RBA has indicated it expects inflation to remain within its 2%-to-3% target band, but has also said interest rates will need to rise further to achieve its forecast.
The above statement by by James Glynn, Dow Jones Newswires, on the Monetary Policy Decision announced today (2 March 2010).
Vas Banschikov
www.SuperInvestor.com.au
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