» RBA Increase Cash Rate by .25 percent

The Reserve Bank of Australia increased the official cash rate by .25 percent at the November board meeting. With warnings in the past quarters, the RBA decided this month that increasing the cash rate from 4.5 to 4.75 percent would help the Australian economy fight inflation pressures.

The RBA is confident that the economy will surge next year due to an increase in trade activity which brings additional income to the country without being highly watchful of inflation activity. RBA Governor Glenn Stevens was not surprised with the 2.4 percent inflation rate for the third quarter of 2010 but he is aware that the pressure for an upward swing of inflation is still there.

With the Asian economy growing and the North Atlantic economy still unstable, Stevens said that the Australian economy might incur expansionary shock due to high trade activity and modest surplus. Inflation is set to rise over the medium term and the balance of risks has shifted to a period of modest monetary tightening.

The Reserve Bank of Australia thinks that the official cash rate hike is necessary with more rate hikes expected next year due to the reduction of the unemployment as well as the general outlook of the economy continuing to improve.

However, the pressure is with Canberra for Stevens mentioned that the impact of public spending has decreased. Interest rates are still within decade-long averages and this serves as a warning that the economy might return to its 2006 and 2007 status.