RBA leaves interest rates on hold

The RBA Board leaves the cash rate unchanged at 4.25pc following successive cuts in the lead up to Christmas

February 7, 2012

The Reserve Bank of Australia has decided to leave the cash rate unchanged at 4.25 percent this month, despite calls from industry to continue last year’s successive cuts in the lead up to Christmas.

At today's meeting, the RBA Board noted that interest rates for borrowers have declined to be close to their medium-term average, as a result of the actions at its previous two meetings.

"With growth expected to be close to trend and inflation close to target, the Board judged that the setting of monetary policy was appropriate for the moment," RBA Governor Glenn Stevens says.

According to Stevens, housing prices also showed some sign of stabilising at the end of 2011, after having declined for most of the year.

While the exchange rate has risen further, the Australian Dollar in trade-weighted terms is "somewhat lighter" than the Bank had previously assumed.

Similarly, the financial pressures on the banks in Europe continue to weigh on the RBA Board’s monthly rate decision.

"Much remains to be done to put European sovereigns and banks on a sound footing, but some progress has been made," Stevens says.

He says labour market conditions softened during 2011 and the unemployment rate increased slightly in mid-year, though it has been steady over recent months.

"CPI inflation has declined as expected, as the large rises in food prices resulting from the floods a year ago have been unwinding."

Year-ended CPI inflation is expected to fall further over the next quarter or two, before settling in the 2-3 percent range over the coming years.

Credit growth remains modest, though there has been a slight increase in demand for credit by businesses.

"Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy," Stevens says.

Today’s decision to leave rates on hold follows successive cuts of 0.25 percent in November and December last year.

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