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June 1, 2010    

Australia halts aggressive rate hikes

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by Kay Murchie

The Reserve Bank of Australia (RBA) has today elected to leave interest rates on hold at 4.5% after a series of aggressive rate hikes since October.

While the decision was widely expected, economists say the central bank will only leave rates on hold for the short-term.

Australia was the first economy to raise rates from a 50-year low as the economic downturn eased. Other major economies opted for lower interest rates to boost their economies.

The country is one of the few developed economies not to have fallen into recession like its counterparts throughout the world as it 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.

Commenting on today’s decision, RBA Governor Glenn Stevens said: “Interest rates to borrowers are around their average levels of the past decade, which is a significant adjustment from the very expansionary settings reached a year ago.

“Taking all the available information into account, the board views this setting of monetary policy as appropriate for the near term,” he added.

The news will almost certainly come as a relief to consumers after a recent survey by Westpac bank and the Melbourne Institute revealed that Australian consumer confidence has been hit by the recent hike in interest rates.

The study, which questioned 1,200 people, found that consumer morale in May fell for the second consecutive month – by 7% to a reading of 108.

This represented the biggest monthly fall since autumn 2008 – the time of the Lehman Brothers crisis.

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