(3 November 2009 – Australia) The Reserve Bank of Australia has decided to raise the cash rate to 3.5 percent, an increase of another 25 basis points, albeit below widely the expected margin of 0.50 percent increase.The cash rate increased another 25 basis points following the Reserve Bank’s increase in October, the first since March 2008, showing the RBA still considers the economy to be growing steadily.
In making its decision the RBA said that sentiment in global financial markets is much better than earlier in the year. Nonetheless, the state of balance sheets in some major countries remains a potential constraint on their expansion.
Economic conditions in Australia have been stronger than expected and measures of confidence have recovered. Some spending has probably been brought forward by the various policy initiatives, the RBA added.
However, with those effects now diminishing, these areas of demand may soften somewhat. Some types of capital spending are likely to be held back for a while by financing constraints, but it now appears that private investment will not be as weak as earlier expected.
There have been some early signs of an improvement in labour market conditions. The rate of unemployment is now likely to peak at a considerably lower level than earlier expected, the RBA concluded.