Reserve Bank of Australia Takes First Proactive Steps to Tighten Monetary PolicyPosted: October 6, 2009
Tonight, the Reserve Bank of Australia (RBA) took the first step of any country in the G20 to actually raise interest rates: “…the Board decided to raise the cash rate by 25 basis points to 3.25 per cent, effective 7 October 2009.” For those of us on inflation watch, this action is an encouraging sign that some central banks remain serious about protecting the value of their currency.
The RBA did not raise an alarm about inflation. Instead, it noted that easy monetary policy is no longer needed in Australia: “With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy.” The RBA noted three main encouraging economic signs:
- “Economic conditions in Australia have been stronger than expected and measures of confidence have recovered.”
- “Unemployment has not risen as far as had been expected.”
- “Housing credit growth has been solid and dwelling prices have risen appreciably over the past six months.”
The Australian dollar has appreciated 22% this year, making it one of the strongest currencies versus the U.S. dollar. The RBA took this rise into consideration in deciding to raise rates: “The exchange rate has appreciated considerably over the past year, which will dampen pressure on prices and constrain growth in the tradeables sector.”
Of course, interest rates are coming off 40-year lows, but it seems as though Australians can trust in the value of their money for some time to come.