Interest rates unchanged at 4.75%

The Reserve Bank of Australia has left the official cash rate on hold at 4.75% for the sixth consecutive month, but has flagged that it will study rising inflation closely in the coming months.

The widely-expected interest rate decision has been welcomed by those in the property and retail sectors, who are concerned that rates rises could further spook cautious consumers.

RBA Governor Glenn Stevens said the bank was expecting a fall in GDP growth in the March quarter as a result of Australia’s recent run of natural disasters, although he predicted a “mild” increase in economic activity as rebuilding efforts get under way.

“Over the medium-term, overall growth is likely to be at trend or higher,” Stevens said.

Of more concern is the inflation outlook. While the Queensland floods and Cyclone Yasi have pushed up prices in the short-term, they should fall back later in the year, with the RBA still confident “CPI will be closer to target over the year ahead”.

But while inflation might currently be tracking within the RBA’s target band of 2-3%, Stevens has warned it might not stay that way.

“Looking through these short-term movements, however, the recent information suggests that the marked decline in underlying inflation from the peak in 2008 has now run its course,” Stevens said.

“While the rising exchange rate will be helping to hold down prices for some consumer products over the coming few quarters, over the longer term inflation can be expected to increase somewhat if economic conditions evolve broadly as expected.

“At today’s meeting, the Board judged that the current mildly restrictive stance of monetary policy remained appropriate. In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation.”