“In late ’08 and early ’09, the cash rate was lowered quickly, to a very low level, in expectation of very weak economic conditions and a recognition that considerable downside risks existed. That basis for such a low interest rate setting has now passed, however. With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy.” The move to hike rates 25 bps to 3.25% by the RBA was a surprise and in clear contrast to the Fed, whose Dudley repeated that rates will stay very low for a while. The Fed’s emergency cuts took the FF from 2% in Oct ’08 to .25% in Dec when the fear of collapse was rampant. The world is far from that scary time but the Fed wants to keep the peddle to the meddle and it’s why the US$ is near record lows and gold near record highs.
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