Stronger trade led to rate rise

SYDNEY - A stronger than expected prospective rise in the terms of trade was a major factor in the Reserve Bank of Australia's (RBA) decision to increase official interest rates in April, its board minutes show.

In its April 6 minutes released yesterday, the RBA board said lending rates were still below average when it made the decision and interest rates would be expected to be "close to average" in view of its economic forecasts.

The RBA decided to lift the cash rate by 0.25 per cent to 4.25 per cent on April 7, making it the fifth increase since early October.

The central bank said the prospective rise in the terms of trade was now likely to be "noticeably stronger than had been expected" which was a factor in suggesting that "it might be prudent not to delay adjustment".

"Overall members considered that the outlook for the economy suggested that there was a case for a further step in the process of returning interest rates to more normal levels," the minutes said.

- AAP