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By: Staff Reporter
Rising activity has forced the RBA to tighten monetary policy for the third time this year – taking the official cash rate to 4.5 per cent.
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The RBA raised the official cash rate 25 basis points this afternoon on the back of strong underlying inflation and surging coal and iron ore prices.
While there has been growing concern that any further rate hikes could weaken consumer demand, data released last week showed rising fuel, medicine and electricity costs forced headline CPI up 0.9 per cent to an annual rate of 2.9 per cent.
Bankwest’s chief economist Alan Langford said the rate hike was not unexpected, despite the ongoing problems associated with Greece’s sovereign debt travails.
Speaking about the CPI results last week, Mr Langford said unless there was a steep pullback in share prices to trigger an erosion in household wealth, the RBA would continue to raise the cash rate towards 5 per cent.
Speaking about the RBA’s decision to lift the official cash rate again, governor Glenn Stevens said the board continues to adjust the cash rate towards neutral levels.
“The board expects that, as a result of today’s decision, rates for most borrowers will be around average levels. This represents a significant adjustment from the very expansionary settings reached a year ago,” Mr Stevens said.
“The board will continue to assess prospects for demand and inflation, and set monetary policy as needed to achieve an average inflation rate of 2 to 3 per cent over time.”
