RBA keeps interest rates on hold at 4.25%

The Reserve Bank has kept interest rates on hold at 4.25% at this afternoon’s meeting, in a move largely expected by economists who said recent economic data wouldn’t be enough to sway the bank.

However, the move comes after business groups have lobbied the RBA to lower rates in order to boost poor-performing sectors, such as construction or property.

In a statement, governor Glenn Stevens said that while recent information suggests the world economy is set to grow at a below-trend pace, it is not enough to suggest a “deep downturn” is occurring.
In Australia, he said, growth in domestic demand has run at its fastest in four years, although output growth was somewhat below trend.

“Interest rates for borrowers remain close to their medium-term average. Credit growth remains modest. Housing prices have shown some signs of stabilising recently, after having declined for most of 2011, but generally the housing market remains soft.”

However, he also said the board found that the pace of output grwoth was “somewhat lower than earlier estimated”, possibly setting up the bank for a cut in the next few months. 

“The exchange rate has remained high over recent months, even though the terms of trade have declined somewhat,” he said. 

Stevens also pointed out inflation will be in the 2-3% range over the next one to two years, and “abstracts from the effects of the carbon price”.

The board also said that if conditions are to weaken, then low inflation gives it scope to reduce rates when needed.

“At today’s meeting, the Board judged the pace of output growth to be somewhat lower than earlier estimated, but also thought it prudent to see forthcoming key data on prices to reassess its outlook for inflation, before considering a further step to ease monetary policy.”