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October 6, 2009    

Australia raises interest rates to 3.25%

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by Kay Murchie

Australia, which is one of the few developed economies not to have fallen into recession like its counterparts throughout the world, has increased interest rates from their record low of 3% to 3.25%.

The move did not come as a surprise to analysts and further rises in interest rates are expected. Today’s move is the first time Australia’s central bank has increased interest rates in over 18 months.

The increase means the country is the first G20 nation to up rates and the central bank said it was safe to put the brakes on the stimulus package as the economy starts to recover.

Earlier this year, the Australian Government announced a multi-million dollar stimulus package, designed to help the country weather the economic downturn.

Meanwhile, the Australian economy has benefited from an increase in commodity prices, while exports have received a boost due to demand from China for its iron ore and other raw materials.

Last month, official figures revealed that the Australian economy exceeded expectations in the April to June period by experiencing growth of 0.6% compared with the previous quarter.

Growth in the second quarter was boosted by a revival in business investment and household consumption.

Commenting on the decision by the Reserve Bank of Australia (RBA), Rory Robertson, interest rate strategist at Macquarie, said: “The RBA had widely advertised it was near to edging up rates from their extraordinary lows, and now it’s done so.”

“It will be a gradual move from an emergency rate of 3%, to a still-easy 4%,” he added.

Meanwhile, in his post-meeting statement, RBA Governor Glenn Stevens, said: “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.”

Finally, Australia’s unemployment rate remains lower than almost all of the world’s major advanced economies, standing at 5.8%.

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