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Economic Update - by Macquarie Private Wealth9th October 2009 The Reserve Bank of Australia (RBA) has become the first major economy central bank to raise interest rates since the beginning of the global financial crisis. The RBA lifted rates by 25 basis points to 3.25% on 6 October 2009. The RBA Governor, Glenn Stevens, stated that the conditions that motivated the easing of the cash rate had passed. He 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". Last week, the International Monetary Fund stated that it expected Australia's economy to grow by 0.7% in 2009 and 2% in 2010. The RBA's forecast released in August, which are expected to be upgraded, expected the economy to be expanding by 2.25% in 2010. Australia was the only economy in the developed world to expand in the first half of 2009 after major stimulus spending by the Federal Government and maintenance of a low cash interest rate. Following the RBA announcement, the Australian dollar has strengthened against US dollar. The Australian sharemarket also rallied following the increase in interest rates with the S&P/ASX 200 finishing up 0.4% at 4591.60. The decision by the RBA came just two days before the Australian Bureau of Statistics (ABS) announcement of the national unemployment rate. The figures released by the ABS showed an unexpected fall in the unemployment rate in September with a drop to 5.7% from 5.8% in August. While the unemployment figures support the RBA's decision to raise interest rates, the variance in the unemployment rates between the states suggests there is some volatility in the figures. Official Cash Rate
Source: IRESS and MPW Research
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