Growing global economy sparks rate rise
The Reserve Bank of Australia (RBA) has increased the cash rate by 25 basis points to 4.25 percent, due to the growing global economy. RBA governor Glenn Stevens indicated that global financial markets are functioning much better than they were a year ago, hence “the extraordinary support from governments and central banks is gradually being wound back”.
Stevens said that although “the expansion is still hesitant in the major countries, due to the continuing legacy of the financial crisis”, Asia has continued its strong growth, “contributing to pressure on prices for raw materials”.
As a result of Asia’s growth, Australia’s terms of trade are rising, adding to incomes and fostering a build-up in investment in the resources sector. “Under these conditions, output growth over the year ahead is likely to exceed that seen last year, even though the effects of earlier expansionary policy measures will be diminishing,” he said.
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