RBA Update

In what was a widely anticipated move, the Reserve Bank of Australia (RBA) has again increased the cash rate 25 basis points to 4.5 per cent, for the third time this year. 

Governor Glenn Stevens said the board continues to adjust the cash rate towards average levels.

“With the risk of serious economic contraction in Australia having passed some time ago, the Board has been adjusting the cash rate towards levels that would be consistent with interest rates to borrowers being close to the average experience over the past decade or more. The Board expects that, as a result of today’s decision, rates for most borrowers will be around average levels. This represents a significant adjustment from the very expansionary settings reached a year ago.”

Mr. Stevens went on to say that inflation was around 3 per cent over the last year and even though it has declined from its peak, it will remain in the upper half of the bank's target zone.

“Recent data on inflation confirm that it has declined from its peak in 2008, helped by a noticeable slowing in private-sector labour costs during 2009, the rise in the exchange rate and the earlier period of slower growth in demand. In both underlying and CPI terms, inflation over the most recent 12 months was around 3 per cent. Nonetheless, the extent of decline from here may not be quite as much as earlier forecast and inflation now appears likely to be in the upper half of the target zone over the coming year.

“The board will continue to assess prospects for demand and inflation, and set monetary policy as needed to achieve an average inflation rate of 2 to 3 per cent over time.”

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