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Ben Kingsley Blog post by Ben Kingsley

RBA Rates Decision – October 2009

The Reserve Bank has lifted interest rates by 0.25% from their historical 40 year lows, due to rebounding economic outlook and change in sentiment.  The RBA believes we are past the worst of the economic downturn, yet the historically low rates were originally implemented with the view that the economy and unemployment were going to get worse than has actually been the case.

As you can see from the forecast from ANZ, Westpac and St George below, they didn’t expect rates to go up until into the new year.

Employment and consumer spending will be the main factors the RBA will be watching closely going forward.  If unemployment remains stable and does not hit forecast levels of 8-9% and consumer spending holds up, then rates will continue to rise.  How quickly will actually depend how quickly the world follows our lead out of this economic slowdown.

In my view the RBA are trying to even out the potential boom/bust cycle by moving rates up slightly now in an effort to steady uptrend in growth rather than a quick ‘V’ shaped recovery, which brings with it a harder balancing act.  Only history will tell us if this move was timed right or if it was too early.

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