No Change Decreed in 4.75% Australian Cash Rate

December 7, 2010

The statement today from Glenn Stevens, Governor of the Reserve Bank of Australia, called the 4.75% benchmark interest rate “appropriate” and observed that the lending rates of financial institutions in Australia are now “a little above average.”  The central bank has already engineered seven rate increases of 25 basis points each, the most recent being made after the prior policy meeting on November 2 and the first happening in October 2009.  The statement projects pretty steady inflation over “the next few quarters” but upward pressure over the “medium term if the economy grows as expected” — that is in a range of 3.75-4.0% in both 2011 and 2012.  Australian incomes are being lifted by the nation’s highest terms of trade (export/import price ratio) since the early 1950s.  Employment growth over the past year has been very strong, but Australia’s significantly appreciated exchange rate should provide some containment for inflation.  Growth recently has been restrained by a higher savings rate and subdued overall credit growth.

Copyright 2010 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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