Reserve Bank of Australia raises cash rate by 25 basis points to 4.75%

Reserve Bank of Australia raises cash rate by 25 basis points to 4.75%

Read the Reserve Bank of Australia's statement below:

At its meeting today, the Board decided to raise the cash rate by 25 basis points to 4.75 per cent, effective 3 November 2010.

The global economy grew faster than trend over the year to mid 2010. Global growth will probably ease back to about trend pace over the coming year as strong recoveries in the emerging world give way to a more sustainable pace of expansion and growth remains subdued in the United States and Europe.

At the same time, concerns about the possibility of a larger than expected slowing in Chinese growth have lessened recently and most commodity prices have firmed, after a fall earlier in the year. The prices most important to Australia remain at very high levels, with the result that the terms of trade are at their highest since the early 1950s. The turmoil in financial markets earlier in the year has abated, though sentiment remains fragile.

Information on the Australian economy indicates growth around trend over the past year. Public spending was prominent in driving aggregate demand for several quarters but this impact is now lessening. While there has been a degree of caution in private spending behaviour thus far, the rise in the terms of trade, which is now boosting national income very substantially, is likely to lead to stronger private spending over the next couple of years, especially in business investment.

Asset values are not moving notably in either direction, and overall credit growth remains quite subdued at this stage notwithstanding evidence of some greater willingness to lend. The exchange rate has risen significantly this year, reflecting the high level of commodity prices and the respective outlooks for monetary policy in Australia and the major countries. This will assist, at the margin, in containing pressure on inflation.

The demand for labour has continued to firm. While the labour market is not as tight as in 2007 and 2008, some further strengthening would appear to be in prospect, judging by the trends in job vacancies. After the significant decline last year, growth in wages has picked up somewhat, as had been expected. Some further increase is likely over the coming year. Given these conditions, the moderation in inflation that has been under way for the past two years is probably now close to ending. Recent information suggests underlying inflation running at about 2½ per cent, with the CPI inflation rate a little higher due mainly to increases in tobacco taxes.

Both results were helped somewhat in the latest quarter by unusual softness in food prices. Inflation is likely to rise over the next few years. This outlook, which is largely unchanged from the Bank's earlier forecasts, assumes some tightening in monetary policy. For some time, the Board has held the stance of monetary policy steady, which has resulted in interest rates to borrowers being close to their average of the past decade. This allowed some time to observe the early effects of previous policy changes and to monitor the uncertain global outlook.

The Board is also cognisant of differences in the degree of economic strength by industry and by region. However, the economy is now subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity.

Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains. At today's meeting, the Board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent.

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Yes ,Yes Yes , and Dr Bollard should be doing the same , because when round 2 of the GFC starts, he needs something in his war-chest to throw at the problem  

And unemployment in Noddy has gone where?....nowhere!. It's like chalk and cheese with a ditch between them. Sept we got us a property bubble what we can't afford on our peasant incomes unless we go deeper and deeeeper into debt. Koooooweeee what an economee. Where's that Kiwi dollar gunna go now....

I disagree.

The economy is still very sluggish, it needs the stimuls of lower interest rates.

Worst comes to worst, if GFC II stirkes, then there is still a bit of wriggle room to lower from the current rate  

Jeeez Matt...what do you think will happen to the deposits in noddy banks if the rates drop...heaps will cross the ditch within 72 hours. Then what...the bank balance sheets will look as sick as a dog....aint no way Bolly can lower the ocr....he's doing enough damage to deposits here as it is....that's one reason why the "covered bond" stupidity is heating up. In fact he cannot even hint that he would lower the rate. This economy is dead in the water because people don't have the incomes to save after they feed the banks and the landlords. The gamble is that farmers will come to the rescue and splurge like it was 2005...fat bloody chance.

Bollard is getting behind the 8 ball again. Our OCR needs lifting like it or not. REAL inflation is still going up. The latest CPI figures as usual are BS and hand picked. Name 1 'everyday item' that has gone down in price? Put it UP! What's  that? he can't? Why? Ohh..... because "it will again over value the NZD and hurt NZ exporters and home owners". So if that's TRUE then WHERE IS THE EFFORT TO KILL THE NZD VALUE? I don't see it from anywhere.

why should he put the OCR up? The headline inflation figure is driven essentially by one offs that won't be affected by the OCR.  The economy is still sick as a dog. The rate is high by international standards.

I think it needs to be kept the same for a while yet.

And if the currency appreciates 10% against the Aussie you have lost 10% of your capital chasing an extra percent

commonwealth hiked their rates 45 points straight after the rba---ralphie been hinting about this for a couple of months---their variable rate now 7.81 %

http://bigpondnews.com/articles/TopStories/2010/11/02/Swan_accuses_CBA_of_cynical_cash_grab_533986.html

How fortuitous you slack sods in New Zealand are , to have such  a properous and sensible neighbour as Australia  is  , to bludge off !

Meebee one day , when National & Labour have finished taking turns at utterly rooting the New Zealand economy , in desperation , a " Paul Keating " may step up to the plate , and bat you out of your problems too .

But as long as you cling to the welfare state , big government , and bailing out anything and anyone who screws up ; you remain rooted ............ Sad !

Ozzie Ozzie Ozzie : Oi Oi Oi : Go you good thing !

Lol GBH - How fortuitous you slack sods in Australia are - to have such a prosperous and sensible neighbour as China to sell you minerals to.

You will discover soon that your wealth is not all your own making.