Interest rates remain at 4.75%

The Reserve Bank has decided to leave the cash rate unchanged at 4.75 per cent.

In a statement the RBA said that following its decision last month to lift rates by 25 basis points, and the subsequent decision by the major banks to lift their cash rate further, "lending rates in the economy are now a little above average."

"The Board views this setting of monetary policy as appropriate for the economic outlook," the RBA statement said.

Macquarie Group chief economist Brian Redican said the RBA's accompanying statement with the decision showed risks remained skewed towards further interest rate rises next year.

"The final statement that the current level of policy is appropriate might give some optimism that interest rates might be on hold for a while," Mr Redican said.

"If you look at what the Reserve Bank is focusing on, they're talking about accelerating wages growth and business investment picking up, so in that respect the risks are still very highly skewed to higher rates than the market is anticipating," he said.

CommSec chief exconomist Craig James said the RBA is clearly in 'wait-and-see' mode on interest rates.

"This is clearly great news for all concerned, allowing Aussies to get on with life, get a little more confidence back, and start spending and investing again," he said.

Mr James said that investors and borrowers need to go into 2011 with their eyes wide open.

"The RBA Governor has indicated that rates are still more likely to rise, not fall, in the coming year.

"Simply, if you factor in higher rates over the next year then you have the best chance of maintaining your current lifestyle without major disruption," said Mr James.

Reserve Bank statement below:

At its meeting today, the Board decided to leave the cash rate unchanged at 4.75 per cent.

Since the previous Board meeting, concerns about the creditworthiness of a number of European governments have again become the main focus of financial markets, with a marked rise in sovereign bond spreads for some euro-area countries and an increase in volatility.

At the same time, recent data suggest that the Chinese and Indian economies have continued to grow strongly and price pressures, particularly for food, have picked up in China as well as a number of other economies in Asia.

Modest growth is continuing in the United States.

For Australia, the terms of trade are at their highest level since the early 1950s, and national income is growing strongly as a result.

Recent information indicates that, as had been expected, private investment is beginning to pick up in response to high levels of commodity prices.

In the household sector thus far, there continues to be a degree of caution in spending and borrowing, which has led to a noticeable increase in the saving rate.

Asset values have generally been little changed over recent months and overall credit growth remains quite subdued, notwithstanding evidence of some greater willingness to lend.

Employment growth has been very strong over the past year, though some leading indicators suggest a more moderate pace of expansion in the period ahead.

After the significant decline last year, growth in wages has picked up somewhat, as had been expected.

Some further increase is likely over the coming year.

The exchange rate has risen significantly this year, reflecting the high level of commodity prices and the respective outlooks for monetary policy in Australia and the major countries.

This will assist, at the margin, in containing pressure on inflation over the period ahead. Over the next few quarters, inflation is expected to be little changed, though it is likely to increase somewhat over the medium term if the economy grows as expected.

Following the Board's decision last month to lift the cash rate, and the subsequent increases by financial institutions, lending rates in the economy are now a little above average.

The Board views this setting of monetary policy as appropriate for the economic outlook.