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RBA says rates probably high enough to quell inflation

Tuesday 15th July 2008

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Interest rates in Australia are probably high enough to ensure inflation abates over time, according to notes from that nation's central bank meeting on July 1.

"While members remained concerned about the current rate of inflation and the uncertainties about the outlook, the increasing signs that demand was slowing suggested that the existing policy setting was exerting the appropriate degree of restraint," according to minutes of the meeting, posted on the Reserve Bank of Australia's website today.

Inflation in Australia sped to 4.2% in the first quarter from a year earlier, the fastest pace in 17 years, as the economy expanded 0.6%, more than some economists had expected. The central bank's decision to keep rates unchanged this month may help underpin growth in New Zealand's largest export market.

RBA Governor Glenn Stevens signaled he was prepared to raise borrowing costs again unless economic growth cooled enough to slow inflation, when he kept the overnight cash rate at 7.25%.

Shipments to Australia rose 23% to NZ$8.8 billion in the 12 months ended May 31, accounting for about 22% of total merchandise exports, according to New Zealand government figures.

By Jonathan Underhill

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