The Reserve Bank of Australia increased its interest rate by 25 basis points for the third consecutive month today. Today’s decision to raise the cash rate to 3.75 percent was generally expected by market forecasters. Australia became the first G20 economy to increase its interest rate since the financial crisis in October as the Australian economy has been picking up steam. The October rate increase was the first rate change since April 2009 when the RBA decreased the rate by 25 basis points to the 3.00 percent level, a 49-year low.
Australia’s Glenn Stevens, Governor of Monetary Policy, said in his policy statement that, “The global economy has resumed growth. With economic policies remaining expansionary, growth is likely to continue next year, though it will probably be modest in the major countries, due to the continuing legacy of the financial crisis. In China and Asia generally, where financial sectors are not impaired, recovery has been much quicker to date and prospects appear to be for good growth in 2010.”
Australia’s economy handled the economic crisis better than most others as a technical recession was avoided with government stimulus as well as strong demand for Australian goods from China helping the economy avert a deep downturn. In 2009, the GDP of Australia rose for the first half of the year with a 0.4 percent increase in the first quarter followed by a 0.6 percent gain in the second quarter.
Stevens commented on the Australian economy today saying that, “In Australia, the downturn was relatively mild, and measures of confidence and business conditions suggest that the economy is in a gradual recovery. The effects of the early stages of the fiscal stimulus on consumer demand are fading, but public infrastructure spending is starting to provide more impetus to demand. Prospects for ongoing expansion of private demand, including business investment, have been strengthening.” Stevens also said that inflation has continued to be moderate and that unemployment has likely peaked at a level that is lower than previously predicted.
The Australian dollar has been mixed today in forex trading after the interest rate announcement. The Aussie has gained against the US dollar, euro and Japanese yen while declining versus the New Zealand dollar and Canadian dollar according to currency data from Oanda at 12:52pm EST.
AUD/USD Chart – The Australian dollar gaining versus the US dollar in forex trading today after the RBA increased its interest rate for the third month in a row. The AUD/USD had fallen below 0.9000 last week on risk aversion after Dubai’s economic troubles came to light but has headed higher so far this week.