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February 2, 2010    

Australia surprises with interest rate freeze

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by Kay Murchie

The Reserve Bank of Australia (RBA) has stunned the markets by electing to keep interest rates on hold at 3.75%.

The RBA has increased interest rates three times since October and many analysts said interest rates could hit 4.25% in the short-term.

Australia is one of the few developed economies not to have fallen into recession like its counterparts throughout the world.

The 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, the Australian Bureau of Statistics revealed Australia’s unemployment rate fell in December to 5.5% from 5.6% in November.

In comparison, the unemployment rate in both the US and Europe are around the 10% mark.

The unemployment figures raised the belief that Australia would increase interest rates again, which is why today’s decision came as a surprise.

Commenting on its decision, RBA governor Glenn Stevens, said: “If economic conditions evolve broadly as expected, the board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term.”

The decision sent the Australian dollar falling by 1 US cent to $0.88.

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