The Reserve Bank of Australia unexpectedly increased rates from 3.0% to 3.25% on Tuesday. This is the result of a stronger than expected recovery that allows the Central Rate to move away its lowest rate in 49 years. The rate increase appreciated the AUD versus other major currencies.
The move from the Australian Central Bank is welcomed by some economies such as Korea, and the market expects a rate hike there as well. The move by Australia is not without its critics that point out that it still too early to raise rates, and economists were expecting the move to come no earlier than November.
From the RBA Media Release
Economic conditions in Australia have been stronger than expected and measures of confidence have recovered. Some spending has probably been brought forward by the various policy initiatives. As those effects diminish, these areas of demand may soften somewhat. Some types of capital spending are likely to be held back for a while by financing constraints, but it now appears that private investment will not be as weak as earlier expected. Medium-term prospects for investment appear, moreover, to be strengthening. Higher dwelling activity and public infrastructure spending is also starting to provide more support to spending. Overall, growth through 2010 looks likely to be close to trend.
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