02/02/2010 - 11:33

Interest rates left on hold at 3.75%

02/02/2010 - 11:33

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The Reserve Bank of Australia has today decided to leave the official cash rate on hold at 3.75 per cent, going against widely held expectations the central bank would lift rates by 25 basis points.

Interest rates left on hold at 3.75%

The Reserve Bank of Australia has today decided to leave the official cash rate on hold at 3.75 per cent, going against widely held expectations the central bank would lift rates by 25 basis points.

The decision was made at the central bank's monthly board meeting today.

RBA governor Glenn Stevens said the decision to leave the official rate on hold was due to limited available information regarding the impact of some lenders raising their rates more than the central bank's.

"Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point," Mr Stevens said in a statement.

"Since information about the early impact of those changes is still limited, the Board judged it appropriate to hold a steady setting of monetary policy for the time being."

The board today noted that economic conditions in Australia have been stronger than expected following a mild downturn a year ago.

It said while the federal government's fiscal stimulus on consumer demand had now faded, household finances were being supported by strong labour market outcomes and a recovery in net worth.

"Public infrastructure spending is now boosting demand, as is an upturn in housing construction," Mr Stevens said.

"Investment in the resources sector is strong. The rate of unemployment appears to have peaked at a much lower level than earlier expected."

Inflation in annual underlying terms has already declined from its peak in 2008, helped by a fall in commodity prices, a slowing in private-sector wages growth, a rise in the exchange rate and slower demand growth.

Consumer price inflation (CPI) has "risen somewhat" as temporary factors that had been holding it down abated.

"Inflation is expected to be consistent with the target in 2010," Mr Stevens said.

He added that credit for housing was expanding at a solid pace with dwelling prices rising significantly over the past year.

Meanwhile business credit had continued to fall as companies sought to reduce leverage and lenders imposed tighter lending standards and in some cases sought to scale back balance sheets.

"The decline in credit has been concentrated among large firms, which generally have had good access to equity capital and, more recently, to debt markets; credit conditions remain difficult for many smaller businesses."

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