11:33 06Oct09 RTRS-TEXT-
    SYDNEY, Oct 6 (Reuters) - Following is the text of the
Reserve Bank of Australia's statement on Tuesday after its
monthly policy meeting.
   
   At its meeting today, the Board decided to raise the cash
rate by 25 basis points to 3.25 per cent, effective 7 October
2009.
   The global economy is resuming growth. With economic policy
settings likely to remain expansionary for some time, the
recovery will likely continue during 2010 and forecasts are being
revised higher. The expansion is generally expected to be modest
in the major countries, due to the continuing legacy of the
financial crisis. Prospects for Australia's Asian trading
partners appear to be noticeably better. Growth in China has been
very strong, which is having a significant impact on other
economies in the region and on commodity markets. For Australia's
trading partner group, growth in 2010 is likely to be close to
trend.
   Sentiment in global financial markets has continued to
improve. Nonetheless, the state of balance sheets in some major
countries remains a potential constraint on their expansion.
   Economic conditions in Australia have been stronger than
expected and measures of confidence have recovered.  Some
spending has probably been brought forward by the various policy
initiatives. As those effects diminish, these areas of demand may
soften somewhat. Some types of capital spending are likely to be
held back for a while by financing constraints, but it now
appears that private investment will not be as weak as earlier
expected. Medium-term prospects for investment appear, moreover,
to be strengthening. Higher dwelling activity and public
infrastructure spending is also starting to provide more support
to spending. Overall, growth through 2010 looks likely to be
close to trend.
   Unemployment has not risen as far as had been expected. The
weaker demand for labour over the past year or so nonetheless has
seen a moderation in labour costs. Helped by this and the earlier
fall in energy and commodity prices, inflation has been
declining, though measures of underlying inflation remained
higher than the target on the latest reading. Underlying
inflation should continue to moderate in the near term, but now
will probably not fall as far as earlier thought.
   Housing credit growth has been solid and dwelling prices have
risen appreciably over the past six months. Business borrowing
has been declining, as companies have sought to reduce leverage
in an environment of tighter lending standards. But large firms
have had good access to equity capital and access to debt markets
appears to be improving, helped by the better-than-expected
economic conditions and increased willingness on the part of
investors to accept risk. Share markets have recovered
significant ground.
   Interest rates facing prospective borrowers on fixed-rate
loans have already risen to some extent, as markets have
anticipated a higher level of the cash rate. For many business
borrowers, increases in risk margins will still be occurring for
some time yet. In addition, the exchange rate has appreciated
considerably over the past year, which will dampen pressure on
prices and constrain growth in the tradeables sector. These
factors have been carefully considered by the Board.
   In late 2008 and early 2009, 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. This will
work to increase the sustainability of growth in economic
activity and keep inflation consistent with the target over the
years ahead.