UPDATED: The Reserve Bank of Australia (RBA) has opted to raise its official cash rate to 4.75% from 4.5% because it expects inflation build over the medium term.The move was against expectations that the bank would leave the rate unchanged, thanks to bet
UPDATED: The Reserve Bank of Australia (RBA) has opted to raise its official cash rate to 4.75% from 4.5% because it expects inflation build over the medium term.
The move was against expectations that the bank would leave the rate unchanged, thanks to better than expected inflation data and the strong Australian dollar.
Australia's consumer price index rose 0.7% in the third quarter from the second quarter and rose 2.8% from a year earlier, which was a more benign than economists had expected.
A strong Australian dollar has helped to temper inflationary pressures, and expecations of a rate hike.
RBA Governor Glenn Stevens said notwithstanding recent good results on the CPI front, the risk of inflation rising again over the medium term remained.
Mr Stevens said concerns about the possibility of a larger than expected slowing in Chinese growth had lessened r and most commodity prices had firmed.
Public spending was prominent in driving aggregate demand for several quarters but this impact is now lessening.
Demand for labour has continued to firm. “While the labour market is not as tight as in 2007 and 2008, some further strengthening would appear to be in prospect, judging by the trends in job vacancies,” he said.
After the significant decline last year, growth in wages has picked up somewhat, as had been expected. Some further increase is likely over the coming year.
“Given these conditions, the moderation in inflation that has been under way for the past two years is probably now close to ending,” Mr Stevens said.
The RBA, which aims to keep inflation within a 2% to 3% target range, had kept the cash rate on hold since May.
