Rate rise due to strong Asian markets
Reserve Bank governor Glenn Stevens has today confirmed a rise in interest rates this month. Stevens announced that the cash rate will increase by 25 basis points to 4.5 percent, effective from tomorrow.
This was widely anticipated by economists who have pointed to strong growth in Asian markets, surging house prices in the Australian market and increased demand for raw materials exports from Australia as reasons for another increase.
The Reserve Bank predicts that Australian terms of trade will peak to 2008 levels this year, stabilising interest rates at “average levels” for most mortgagees. This is the sixth interest rate rise since October, following a 20 percent increase in house prices from this time last year and inflation in the domestic market, which reached 2.9 per cent for the first three months of this year.
Stevens has highlighted strong growth in Asia and the beginnings of economic recovery in North America as indications that the outlook for global financial markets has significantly improved. Despite this recovery, Stevens said: “Sovereign risk concerns have escalated significantly in Europe over recent weeks. This has prompted additional efforts by policymakers to put fiscal policies onto a sounder footing and to provide support for Greece in the near term.”
Australian exporters have little cause for concern, however, with the Reserve Bank expecting the problem to remain contained in the European Economic Community.
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