RBA leaves interest rates on hold 1

Reserve Bank Board leaves official cash rate on hold at 4.75 percent due to ongoing concerns over European markets

December 7, 2010

The Reserve Bank Board has decided to leave the official cash rate on hold at 4.75 percent at its meeting this afternoon.

RBA governor Glenn Stevens says concerns about the creditworthiness of a number of European governments have again become the main focus of financial markets.

This includes a marked rise in sovereign bond spreads for some euro-area countries and an increase in volatility.

For Australia, the terms of trade are at their highest level since the early 1950s, and Stevens says national income is growing strongly as a result.

"Recent information indicates that, as had been expected, private investment is beginning to pick up in response to high levels of commodity prices," he says.

"In the household sector thus far, there continues to be a degree of caution in spending and borrowing, which has led to a noticeable increase in the saving rate."

Stevens says asset values have generally been little changed over recent months and overall credit growth remains quite subdued.

"Employment growth has been very strong over the past year, though some leading indicators suggest a more moderate pace of expansion in the period ahead," he says.

Following the Board's decision last month to lift the cash rate by 25 basis points, and the subsequent increases by financial institutions, the RBA says lending rates in the economy are now a little above average.

"The Board views this setting of monetary policy as appropriate for the economic outlook," Stevens adds.

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