Chat with us, powered by LiveChatRBA leaves rates on hold

RBA leaves rates on hold

The Reserve Bank of Australia has left interest rates on hold at their monthly meeting today, sparing borrowers from a jump in repayments for another month at least.

The official cash rate was left at 4.75 per cent, the level reached when the RBA last raised rates on November 2 last year.

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The RBA's decision matched expectations by the overwhelming majority of analysts and investors. As a result, financial markets barely budged on the initial release of the news, with the Australian dollar easing back to 109.1 US cents from 109.2 US cents just before the verdict.

RBA Governor Glenn Stevens indicated that the stronger Australian dollar is helping to keep a lid on prices. The currency has rocketed against the greenback, rising about 6 per cent in the past month alone. Even so, the longer-term outlook contained some risks of higher inflation - and therefore, the prospect of higher interest rates.

''(T)he recent information suggests that the marked decline in underlying inflation from the peak in 2008 has now run its course,'' Mr Stevens said in a speech accompanying the RBA's decision.

''While the rising exchange rate will be helping to hold down prices for some consumer products over the coming few quarters, over the longer term inflation can be expected to increase somewhat if economic conditions evolve broadly as expected,'' Mr Stevens said.

Dollar damage

While a stronger dollar is helping to ease cost pressures for some parts of the economy, analysts such as RBC Capital Market economist Su-Lin Ong noted that the RBA recognises there are some rising risks of a strong dollar.

“It has obvious the dollar has moved to levels that are having a bit more of an impact, particularly in areas like tourism and manufacturing,” Ms Ong said.

“Importantly (the statement) concludes the current stance is appropriate and it doesn’t suggest any urgency to lift rates,” she said.

Source: The Age

Written by Chris Zappone - [email protected]