RBA leaves rates on hold at 4.5%

The Reserve Bank of Australia has left interest rates on hold at 4.5%, citing diminishing concerns about the outlook for inflation and uncertainty about the global economy.

It is the third straight month the RBA has left rates on hold.

The decision, which was widely anticipated by economists, comes after official inflation data for the June quarter showed inflation was far lower than expected.

Most economists have predicted that interest rates will now be on hold until early 2011, when inflation pressures may again start to build in the economy.

In a relatively short statement, RBA Governor Glenn Stevens said the RBA’s inflation forecast of 2.75% had proved to be accurate and inflation was not a big worry.

“Through to mid-2011, underlying inflation is likely to be in the top half of the target zone, while CPI inflation will probably be just above 3% for a few quarters due to the impact of the tax changes and increases in utilities prices,” he said.

“The current setting of monetary policy is resulting in interest rates to borrowers around their average levels of the past decade.”

Stevens noted that households continue to “display a degree of caution” although he said the signs were good for a rebound in business investment.

The RBA also appears to have become less concerned about house prices.

“Credit outstanding for housing has continued to expand, but the upward pressure on dwelling prices appears to have abated.”

However, Stevens noted that while “business credit has stabilised… credit conditions for some sectors remain difficult”.