Reserve Bank keeps rates steady

Interest rates have been kept steady by Australia's central bank, as widely expected by economists and analysts.

The Reserve Bank of Australia said today it would keep the official cash rate at 2.5 per cent.

RBA governor Glenn Stevens said inflation had been consistent with the bank's medium-term target, while labour costs in Australia were moderating, which was expected to keep inflation in check for the next one to two years.

Mr Stevens said the easing in monetary policy by the RBA since late 2011 had supported interest-sensitive spending and asset values, flagging further positive effects over time.

"The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households," Mr Stevens said.

Globally, financial conditions remain "very accommodative".

"Though the recent reassessment by markets of the outlook for US monetary policy has seen a noticeable rise in soverign bond yields, from exceptionally low levels, volatility in financial markets has increased and has affected a number of emerging market economies in particular," Mr Stevens said.

"Notwithstanding the higher volatility, Australian institutions have ample access to funding markets."

Housing market analyst RP Data's research director, Tim Lawless, said the hold on rates came as no surprise.

"The latest data associated with the housing market remains positive, providing an increasingly firm indication that households and developers are responding to the low interest rate environment," Mr Lawless said.

"Dwelling values have continued along their recovery path, with home values half a per cent higher over in August and 7 per cent higher since the housing market started recovering in May last year.

"The 0.5 per cent rise in dwelling values in August is likely to provide the RBA with some comfort after values rose by a cumulative 3.5 per cent over June and July."

The Housing Industry Association said nobody expected a rate cut, but urged the central bank to move again in the final quarter of the calendar year.

HIA chief economist Harley Dale said the modest recovery in residential construction was falling short of what was required to stoke the industry.

"A final round of interest rate cuts in late 2013 would coincide with a likely bnoost to household and business confidence following the federal election," he said.

"That combination would help set the platform for a sustained recovery in new home construction and a turnaround in renovations investment."

Loan Market director Mark De Martino, however, said the August cut had injected plenty of activity into the market, with the recod low rates helping existing mortgage holders as well as those seeking to break into the market.

"The August rate cut gave our business more finance enquiries than any other month in the past 12 months," he said.

"Home owners and potential buyers are starting to realise just how competitive lenders are acting and that they can save thousands of dollars by shopping around."