The Reserve Bank of Australia has ruled to raise the official interest rate by 25 basis points to 4.5%, but has said that rates should now be at average levels for most Australian borrowers.
Governor Glenn Stevens said in a statement that the decision was based on forecasts for world GDP growth, which have been lately revised upwards, and strength in financial sectors.
“Australia’s terms of trade are rising by more than earlier expected, and this year will probably regain the peak seen in 2008. This will add to incomes and foster a build-up in investment in the resources sector.”
Get daily business news.
The latest stories, funding information, and expert advice. Free to sign up.
“Under these conditions, output growth over the year ahead is likely to exceed that seen last year, even though the effects of earlier expansionary policy measures will be diminishing. The process of business sector deleveraging is moderating, with business credit stabilising and indications that lenders are starting to become more willing to lend to some borrowers, though credit conditions for some sectors remain difficult.”
Stevens also said that recent data on inflation confirms it has declined from a 2008 peak, and that in underlying and CPI terms, inflation has remained around 3% for the past year.
However, he warned the extent of decline from this point may not be “quite as much” as earlier forecast, with inflation expected to be in the upper half of the target zone over the year.
In a surprise addition to the statement, Stevens has said that rates for most Australians should now be around average levels. The board has repeatedly said it has intended to move rates towards more “normal” stages, suggesting a pause may occur next month.
“The board will continue to assess prospects for demand and inflation, and set monetary policy as needed to achieve an average inflation rate of 2-3% over time.”