Reserve Bank leaves cash rate on hold

The RBA Board has today left the cash rate unchanged at 4.5 percent amid ongoing economic uncertainty in European markets

June 1, 2010

The Reserve Bank of Australia (RBA) Board has today left the cash rate unchanged at 4.5 percent following
a series
of steady, monthly increases.

The decision comes amid ongoing economic uncertainty in European markets.

"Since the Board last met, concerns about sovereign creditworthiness in several European countries have been a focus of financial markets. Investors have generally displayed a good deal more caution," RBA Governor Glenn Stevens said after today's meeting.

"As a result, equity prices have fallen and long-term government bond rates have declined outside of the countries most affected by the sovereign concerns," he said.

"The Australian dollar fell sharply as part of this adjustment. Commodity prices have also softened, though those important for Australia remain at very high levels."

The effects of these various factors on the world economy will need to remain under review, according to Stevens.

"In Australia, with the high level of the terms of trade expected to add to incomes and demand, output growth over the year ahead is likely to be about trend, even though the effects of earlier expansionary policy measures will be diminishing. Inflation appears likely to be in the upper half of the target zone over the next year," he says.

"Consistent with that outlook, and as a result of actions at previous meetings, interest rates to borrowers are around their average levels of the past decade, which is a significant adjustment from the very expansionary settings reached a year ago. Taking all the available information into account, the Board views this setting of monetary policy as appropriate for the near term."

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