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August 5, 2008

Australia retains 7.25% cash rate

by Richard Kilner

Story link: Australia retains 7.25% cash rate

The Reserve Bank of Australia (RBA) has chosen to leave the cash rate unchanged at 7.25% today.

Governor Glenn Stevens released a statement explaining the Reserve Bank’s decision.

Inflation has been and remains high in Australia, and the RBA wants to gradually lessen it over time.

However, added to that is the pressure of the difficult credit conditions prevailing in Australia, in common with much of the rest of the world.

With rising energy and food costs fuelling inflation and less liquidity in the credit markets than desired, household demand has been curbed.

Pulled in different directions by factors both national and domestic, Stevens opines that the turbulent financial weather makes forecasting inflation and demand in the future difficult.

He has stated, however, that he believes inflation will still be at a high level for the short-term and demand will not bounce back swiftly.

In the longer term, Stevens predicts an inflation rate below 3% within the next two years.

Taking into account the various factors, the RBA has selected not to alter interest rates presently, but it seems likely that monetary policy could become less restrictive in the future.

 

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