Tuesday 23 January 2018

Australia increases interest rates to cool down economy

The Reserve Bank of Australia (RBA) has raised interest rates by 25 basis points, the fifth increase since October, taking borrowing costs to 4.25pc.

Glenn Stevens, governor of the RBA, said the rate rise was another step in returning Australia to an "average'' interest rate after the global recession.

"With the risk of serious economic contraction in Australia having passed some time ago, the (RBA) board has been lessening the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker," he said.

"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.''

The move has concerned economists who believe the increase could prove damaging to the recovery. Greg Evans, the director of economic and industry policy at the Australian Chamber of Commerce and Industry, warned the RBA should show more caution.

"There is every reason for the bank to be cautious. . . there is every evidence that the economy hasn't really moved out of second gear,'' he said.


Stephen Roberts, the chief economist of Nomura in Australia, said that he was surprised by the decision given the mixed economic data in March.

"Two rate rises in a row is pretty aggressive, particularly the way the data has fallen over the past month or so and the indebtedness in the household sector,'' he said.

The rise to 4.25pc marks the fifth time Australia's Treasury has raised borrowing costs since October last year, when it became the first of developed G20 nations to lift rates, from 3pc to 3.25pc. The Australian Treasury then lifted interest rates a subsequent 0.25 percentage points in November, February and March.

The Australian Bureau of Statistics last week reported a 1.4pc fall in retail trade for February, almost reversing the 1.2pc gain in January. The bureau's data also showed a 3.3pc fall in the number of building approvals in February.

The jobless rate rose to 5.3pc in February, from 5.2pc the previous month. The Australian Treasurer, Wayne Swan, said that he sympathised with families struggling to pay mortgages but that the rate was the consequence of a growing, strengthening economy.

"The fact is that rates went to 50-year lows during the global recession and ... they are merely returning to more normal levels," he said.

Irish Independent

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