The Reserve Bank lifted the official cash rate today, as expected, by 25 basis points to seven per cent – the highest rate in 12 years.
Significant inflation pressures were attributed to the Board’s decision however international pressures were also taken into consideration.
“The world economy is slowing and it now appears likely that global growth will be below trend in 2008,” the Reserve Bank’s Board’s accompanying statement said.
“Recent trends in world commodity markets suggest, however, that Australia’s terms of trade are likely to rise further.”
The Board also said that while the passing on of costs to borrowers by financial intermediaries and tightening of lending standards should cause a moderate slowdown in demand, further pressure to cool demand was required.