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Economic Update - Macquarie Private Wealth
1 April 2010
In 2010 the Reserve Bank of Australia (RBA) is celebrating its 50th anniversary of commencing operations as Australia's central bank.
When the RBA separated from the Commonwealth Bank of Australia, it maintained the same charter which obliges the RBA to conduct policies that contribute to the stability of the currency of Australia, the maintenance of full employment in Australia and the economic prosperity and welfare of the people of Australia.
In a departure from the ordinary course of business and to mark the anniversary, Glenn Stevens, Governor of the RBA, appeared on Channel Seven's Sunrise program.
In the interview Mr Stevens took the opportunity to warn viewers that interest rates will increase saying "Once the emergency has passed and things gradually look more normal, then it's not wise to leave interest rates right down at rock bottom any longer than we need. And you shouldn't assume they'll stay low because that assumption will prove to be, you know, unfortunate".
Additional comments suggested the RBA Board is also concerned to ward off potential property market excesses. Mr Stevens said "I think it is a mistake to assume that a, you know, riskless, easy, guaranteed way to prosperity is just to be leveraged up into property. You know, it isn't going to be that easy".
Market commentators expect the RBA to increase the interest rates a number of times during coming months, with pauses as the circumstances dictate, so they are watching statistical releases carefully. The Australian Bureau of Statistics February data on building approvals and retail sales will not force the RBA's hand. The data for seasonally adjusted total dwellings approved fell 3.3%, marking the second consecutive month of decline. Retail sales fell in February by 1.4%, seasonally adjusted, compared to a 1.1% rise for January. Department store sales for February declined 3.9%, as did other personal accessory retailing, with sales in cafes and restaurants rising by 1.8%.
The next RBA board meeting is to be held Tuesday, 6 April.
At its meeting Tuesday 6 April, the Board decided to raise the cash rate by 25 basis points to 4.25 per cent, effective 7 April 2010.
The complete interview with Glenn Stevens can be seen at: http://au.tv.yahoo.com/sunrise/video/play/-/6994337/rba-governor-glenn-em-stevens-em/
% Change in Retail Sales from preceding month, seasonally adjusted
Source: ABS and MPW Research
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