Australia's central bank raises key rate to 4.5%, widening gap with NZ
The increase was anticipated by economists, according to a Reuters survey. Still, the Australian dollar weakened after Reserve Bank Governor Glenn Stevens said borrowing costs are now at about "average" levels, suggesting the RBA has less need for further increases in interest rates.
The increase is the sixth in seven meetings for the RBA board, which has led the world in hiking interest rates in the wake of the global economic crisis. Australia skirted recession, helped by demand from China for minerals such as iron ore and coal and today Stevens said economic growth in Asia has continued to be strong, "contributing to pressure on prices for raw materials."
The increase widens the gap with New Zealand's 2.5% official cash rate to 2 percentage points, with Governor Alan Bollard saying he is likely to lift the OCR in coming months though not to the same extent as in previous tightening cycles. Australia is New Zealand's biggest export market and source of tourists, and the strength of its economy helped soften the impact of the global economic slump.
Stevens said forecasts for world GDP have recently been revised up again, with growth expected to be at trend or above through 2010. While conditions in Europe remain "quite weak," recent data in the U.S. suggest growth there is becoming more established, while Asian growth is "strong."
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