MercoPress. South Atlantic News Agency

Australia Raises Interest Rate for the Sixth Time in Eight Months

Bank governor Glenn Stevens

Australia's central bank has raised interest rates for the sixth time in eight months as the country's economy continues to recover. The target interest rate is now at 4.5%—up from 3% in October last year.

However, Japan—one of Australia’s main trade partners and struggling with deflation last week—left the basic rate at 0.1%. The decision reflects the confidence that Australian policymakers appear to have in the strength of the country's economic recovery.

Unlike Europe and the US, Australia has avoiding falling into recession, helped by the country's strong mining sector. The mining sector has in turn been helped by rising commodity prices and strong demand from developing economies, particularly China.

The latest rate increase had been widely expected, but comments made by the central bank governor Glenn Stevens were being seen as indicating that the run of rate rises is at an end for now. Mr. Stevens said the increase to 4.5% from 3% last October represented “a significant adjustment from the very expansionary settings reached a year ago”.

The growth in Australia's economy has allowed it to raise the cost of borrowing, a move which should help to curb rising inflation and house prices. Australian property prices have risen by more than 20% in the last 12 months, according to the latest official statistics.

Last Friday, Japan's central bank kept interest rates on hold as it continues its efforts to boost the country's economic recovery. As had been widely expected, the bank's rate-setting committee voted unanimously to keep rates at 0.1%. It said keeping rates low was essential in the country's fight against falling prices, which are undermining the economy's recovery. Japan enjoyed economic growth of 0.9% in the last three months of 2009.

“Japan's economy faces the critical challenge of overcoming deflation and returning to a sustainable growth path with price stability,” the bank said. “It was confirmed at the meeting that, in the conduct of monetary policy, the bank would aim to maintain the extremely accommodative financial environment.”

Many see overcoming deflation as key to Japan's efforts to secure strong economic growth. Japan has a history of struggling with deflation. The 1990s are often referred to as Japan's “lost decade” because of its 10-year struggle with falling prices.