Australia's central bank raises key interest rate to 7.25%

Asian Economic News, March 9, 2008

SYDNEY, March 4 Kyodo

Australia's central bank on Tuesday raised its key interest rate by a quarter of a percentage point, citing inflationary pressures.

The Reserve Bank of Australia's decision takes the country's official cash rate to 7.25 percent, a 13-year high.

Economists and market analysts had widely predicted the rate rise, after official figures from the December quarter put underlying inflation at 3.5 percent, well above the central bank's target band of 2 to 3 percent.

Despite concerns about the global credit market and the U.S. economy, RBA Governor Glenn Stevens said the outlook appeared strong for Australia's terms of trade.

''The world economy is slowing and it appears likely that global growth will be below trend in 2008. Recent trends in world commodity markets, however, have further strengthened prospects for Australia's terms of trade,'' Stevens said in a statement.

Strong domestic demand and labor market shortages are also putting pressure on Australia's inflation levels, he said.