Central bank puts benchmark rate at 4.25%, says economy no longer needs the stimulus of low rates

Adelaide, Australia — the Globe and Mail-The Associated Press

Australia’s central bank raised its key interest rate Tuesday for a fifth time in six months and said the economy no longer needs the stimulus of low rates with unemployment lower than expected and housing sales robust.

The quarter percentage point rise took the benchmark rate to 4.25 per cent and followed a warning last week by the central bank governor that mortgage rates would continue to rise.

“It is appropriate for interest rates to be closer to average” because this year’s economic growth and inflation are likely to be near target levels, the Reserve Bank of Australia bank said in a statement.

Australia weathered the global downturn better than most developed countries and the economy grew at its fastest pace in nearly two years in the fourth quarter of 2009.

The central bank cited indications that lenders were more willing to lend, buoyancy in the housing market and lower unemployment than expected.

“With the risk of serious economic contraction in Australia having passed some time ago, the Board has been lessening the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker,” the bank said.

Federal Treasurer Wayne Swan said rates are still lower than they were before the global downturn and the central bank was making moves to bring them to normal levels.

“I know that is cold comfort for a lot of families and a lot of people in businesses,” he told reporters. “But that is the reality of a strengthening economy.”

http://www.theglobeandmail.com/report-on-business/economy/australia-boosts-key-rate/article1524458/