FX : The RBA decided to raise interest rates by 25 basis points
The Reserve Bank of Australia decided to raise interest rates by 25 basis points to reach 3.25% after it was kept at the low record of 3.00% for six months which was the lowest record in almost half century. The RBA said last month that interest rates will be raised as the economy is rebounding and economic activity is advancing.
The reserve bank said in the statement that combined the interest rate decision that the global economy continues to grow and confidence in financial markets is improving. The bank added that investor's appetite for risk is increasing along with improving economic conditions around the world.
However, the RBA said that economic policy setting will remain expansionary for sometime and that economic conditions appear to be stronger than forecasted, while measures of confidence improved. Recovery witnessed in China has been supporting economic growth in other Asian countries, the bank said.
Mr. Glenn Stevens, the governor of the Reserve Bank of Australia, cut the nation's benchmark by 4.25% between September of last year and April of this year to help the economy to find its way out of the worst recession since World War II. Low interest rates helped the Australian economy to avoid technical recession in the first quarter and it also helped spur demand leading to accelerating growth in the second quarter.
Improving economic conditions encouraged monetary policy makers in Australia to raise interest rates as we witnessed the housing sector showing signs of recovery along with increasing demand in the properties market, while the exports sector is advancing gradually supporting economic growth, noteworthy that exports climbed 1.0% during the second quarter.
Retail sales advanced after the government allocated as much as A$20 billion in cash handouts for households which led to increasing demand that was a pillar for economic growth in the last period especially when exports deteriorated, worth mentioning that retail sales climbed 0.9% during August.
As for unemployment, we can see that unemployment rate settled at 5.8% in June, July and August opposing forecasts that referred to increasing unemployment. Stevens expected unemployment rate to increase but less than forecasted as he said that it may reach 6.0% which he considered a low peak amid deteriorating conditions in labor markets around the world.
Regarding inflation rate, the RBA said that it has been declining and it is expected to moderate in the near future and that it won't fall as much as we witnessed earlier when commodity and energy prices fell sharply amid weak world demand.
The Australian dollar rallied against its American counterpart and other major currencies after the release of the interest rate decision and it was traded around 0.8832 against the dollar at 4:25 GMT, while it traded around 1.6641 against the euro and 1.8072 against the royal pound.
Finally, the Reserve Bank of Australia expected that this move on interest rates will help to reach sustainable growth in economic activity and that it will help to keep inflation rate in the desired target previously set by the bank.
