The Reserve Bank of Australia has kept official interest rate remains unchanged at 4.5, citing benign inflation readings and global uncertainty.
The decision comes after economic data, including the TD Securities inflation gauge and the ANZ job ads series, suggested the RBA did not need to raise rates. Most economists predicted there would be no change.
In a statement, RBA Governor Glenn Stevens said financial markets are performing “more smoothly” than they were a few months ago.
“Commodity prices are also off their peaks, though those most important for Australia remain at very high levels, and the terms of trade have regained their peak of two years ago.”
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He also noted the local economy is growing at trend pace, assisted by growing private demand.
“The high level of the terms of trade is boosting incomes, which will tend to add to demand over the year ahead, while the effects of earlier expansionary policy measures will be diminishing. Indications are that business investment in particular could increase strongly.”
“Business credit has stabilised and while credit conditions for some sectors remain difficult, evidence is slowly emerging of more willingness to lend. Credit outstanding for housing has slowed a little over recent months, and the upward pressure on dwelling prices appears to have abated.”
Globally, Stevens noted there are still significant problems in Europe and the US, where expansion in the second half of the year is looking weak.
Looking forward, Stevens noted inflation will remain in the top half of the 2-3% target through to mid-2011, with wages growth picking up.
Similar to last month’s statement, Stevens said the current “neutral” official interest rate is resulting in mortgage rates borrowers remaining at around average levels.
“With growth in the near-term likely to be close to trend, inflation close to target and with the global outlook remaining somewhat uncertain, the Board judged this setting of monetary policy to be appropriate for the time being.”
The article first appeared on Smart Company