Australian Reserve Bank rate hike decision "finely balanced"

15:49, December 15, 2009      

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The Reserve Bank of Australia (RBA)'s decision to raise interest rates this month was a close call and, combined with previous hikes, gives it the flexibility to pause if necessary in coming months.

Minutes of the RBA's December meeting released on Tuesday showed the debate was "finely balanced" but the board decided to hike by 25 basis points to 3.75 percent as rates were just too low for an economy recovering faster than expected.

"Following three rapid-fire hikes, pauses in the tightening cycle are inevitable in 2010, and today's minutes hint at that," said Su-Lin Ong, a senior economist at RBC Capital Markets.

The RBA lifted rates by 25 basis points in October, November and December, the only major central bank to do so.

"Further rate hikes from here will demand more justification given that we have moved away from an 'emergency setting' of rates," Ong added.

Nevertheless, long-term positives such as Asian demand for Australian commodities, a boom in resource investment and rapid population growth pointed to a stronger economy ahead and thus higher rates.

"We expect another hike in February, with the cash rate at 4.50percent by mid-year and 5 percent by year-end," Ong said.

Source: Xinhua
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