Rates left on hold
THE Reserve Bank of Australia has decided to leave the cash rate on hold at 3.5%.
RBA governor Glenn Stevens cited better than expected economic data coming out of Australia in the past month.
Australia's economy grew by 1.3% in the first quarter of the this year, and 4.3% for the 12 months.
Mr Stevens also pointed to Australia's low unemployment rate, despite job shedding in some industries.
Inflation remained comfortably within the central bank's 2-3% target band.
Mr Stevens said a fall in commodity prices was helping to keep inflation in check.
Australia's housing market remained subdued, despite interest rates declining to be "a little below their medium-term averages", Mr Stevens said.
The RBA's decision to leave the cash rate on hold follows cuts totalling 0.75% in the past two months
Statement by the Reserve Bank Board
At its meeting today, the Board decided to leave the cash rate unchanged at 3.50 per cent.
Growth in the world economy picked up in the early months of 2012, having slowed in the second half of 2011. But more recent indicators continue to suggest weakening in Europe and a slower pace of growth in China. Conditions in other parts of Asia have recovered from the effects of last year's natural disasters, but the ongoing trend is unclear and could be dampened by the effects of slower growth outside the region. The United States continues to grow at a modest pace. Commodity prices have declined, which is helping to reduce inflation and providing scope for some countries to ease macroeconomic policies. Australia's terms of trade have peaked, though they remain historically high.
Financial markets have initially responded positively to signs of further progress towards longer-term sustainability in European financial affairs, but Europe will remain a potential source of adverse shocks for some time. While capital markets remain open to corporations and well-rated banks, low appetite for risk has seen long-term interest rates faced by highly rated sovereigns, including Australia, decline to exceptionally low levels. Share markets have remained volatile.
In Australia, recent data suggest that the economy continued to grow in the first part of 2012, at a pace somewhat stronger than had been earlier indicated. Labour market conditions also firmed a little, notwithstanding job shedding in some industries; the rate of unemployment remains low.
There have been no changes to the Bank's outlook for inflation. Over the coming one to two years, and abstracting from the effects of the carbon price, inflation is expected to be consistent with the target. Maintaining low inflation over the longer term will, however, require growth in domestic costs to slow as the effects of the earlier exchange rate appreciation wane.
Interest rates for borrowers have declined, to be a little below their medium-term averages. Business credit has increased more strongly in recent months, though credit growth remains modest overall. The housing market remains subdued. The exchange rate has been volatile recently, but overall remains high.
As a result of the sequence of earlier decisions, there has been a material easing in monetary policy over the past six months. At today's meeting, the Board judged that, with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate.