Australia yesterday announced its fifth rate hike since October and said borrowing costs would continue to rise as growth and inflation return to normal after the global crisis.
The Reserve Bank of Australia (RBA) lifted the official cash rate 25 basis points to 4.25 percent, underlining confidence that Australia has seen off the downturn unscathed and must now work to moderate prices.
“The board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average,” RBA Governor Glenn Stevens said in a statement.
“Today’s decision is a further step in that process,” he said.
Australia was the first developed economy to lift rates after the world’s biggest financial shock since the Great Depression, raising them 25 basis points to 3.25 percent in October and four times since.
The Reserve Bank is now unwinding its emergency cuts of late 2008 and last year, when interest rates were slashed by 425 basis points to a five-decade low of 3 percent as the world economy tanked.
“Australia’s terms of trade are rising, adding to incomes and fostering a buildup in investment in the resources sector,” Stevens said.
“The rate of unemployment appears to have peaked at a much lower level than earlier expected,” he said.
“The process of business sector de-leveraging is moderating, with ... indications that lenders are starting to become more willing to lend to some borrowers,” he said.
Australian Treasurer Wayne Swan said rate rises were inevitable given the country’s performance over the past year, when it experienced only a mild downturn and recovered quickly thanks to government stimulus and booming resources exports.
“We have the strongest growing advanced economy,” Swan told reporters. “If you look around the world you will seeing that what has occurred in Australia is something very special.”
The government announced more than A$70 billion (US$62.9 billion) in emergency stimulus last year, including straight cash hand-outs and grants for first-home buyers and infrastructure spending.
Unemployment of 5.3 percent — well below the peak of 8.5 percent which was projected at the height of the crisis — and 2.7 percent growth last year have seen Australia’s economy tagged “the wonder from Down Under.
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