The Reserve Bank of Australia (RBA) has lifted official interest rate by 25 basis points to 4.75 per cent at its board meeting on November 2, 2010.
It was the fourth time Australia's central bank has raised interest rates in 2010, after moves in March, April and May. And it is fourth consecutive year RBA raises official interest rates on Melbourne Cup day.
Latest inflation data released last week showed lower than expected inflation in the September quarter and thus eased the speculation that the RBA will lift the cash rate at this meeting. However RBA governor Glenn Stevens said the moderation in inflation that has been underway for two years is now close to ending:
Recent information suggests underlying inflation running at about 2½ per cent, with the CPI inflation rate a little higher due mainly to increases in tobacco taxes. Both results were helped somewhat in the latest quarter by unusual softness in food prices. Inflation is likely to rise over the next few years. This outlook, which is largely unchanged from the Bank's earlier forecasts, assumes some tightening in monetary policy.
As a result, Stevens says a move in interest rates is necessary due to the "large expansionary" shock from high terms of trade and "relatively modest amounts of spare capacity":
Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains. At today's meeting, the Board concluded that the balance of risks had shifted to the point where an early, modest tightening of monetary policy was prudent.
The good news - it's unlikely RBA will lift interest rates again in December. The bad news - banks may lift their rates independently.
Commonwealth Bank is a good example. CBA increased its standard variable interest rate by 0.45% - it's almost double the RBA increase! Now Commonwealth Bank Standard Variable Home Loan Rate is at 7.81%.
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