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Economic Update
By Macquarie Private Wealth – 5 March 2010
The Reserve Bank of Australia (RBA) raised the official cash rate by 25 basis points to 4.0% at the meeting held 2 March.
In the comments accompanying the decision, Glenn Stevens, Governor RBA, commented, "In Australia, economic conditions in 2009 were stronger than expected, after a mild downturn a year ago. The rate of unemployment appears to have peaked at a much lower level than earlier expected. Labour market data and a range of business surveys suggest growth in the economy may have already been at or close to trend for a few months”.
He also addressed the risks of inflation resurfacing, saying, "CPI inflation has risen somewhat recently as temporary factors that had been holding it to unusually low rates are now abating. Inflation is expected to be consistent with the target in 2010”.
Media reports have focused on the negative effects of higher rates such as the increases to mortgage interest rates, and potential increases to mortgage repayment amounts where the mortgage holder is only making repayments at the current rate.
To place the rate increases in the context of low prevailing rates, Governor Stevens said, "With the risk of serious economic contraction in Australia having passed, the Board moved late last year to lessen the degree of monetary stimulus that had been put in place when the outlook appeared to be much weaker.…
Interest rates to most borrowers nonetheless remain lower than average. The Board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today's decision is a further step in that process”.
Official Cash Rate
Source: Iress and MPW Research
The material has been prepared by Macquarie Equities Limited ABN 41 002 574 923 (MEL), holder of AFSL No. 237504, Participant of the Australian Securities Exchange Group. This information has been prepared for the use of the clients of Macquarie Group Limited and its related entities (the "Macquarie Group") and is directed and available to residents of Australia only, and is not an offer or solicitation for the purchase of securities, units or investments unless expressly stated otherwise. This information must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose the information in this research in any way. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction.
