RBA leaves rates on hold

A decline in CPI inflation and softening labour market conditions see RBA Board leave interest rates on hold at 4.25pc

March 6, 2012

A decline in CPI inflation and softening labour market conditions have seen the RBA Board leave interest rates on hold at 4.25 percent for the second month running.

In a statement issued this afternoon, RBA Governor Glenn Stevens confirmed that demand conditions would have to "weaken materially" before easier monetary policy is considered.

"Most information on the Australian economy continues to suggest growth close to trend overall, with differences between sectors and considerable structural change," Stevens says.

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

Stevens adds that CPI inflation has declined as expected and will fall further over the next quarter or two.

Over the coming one to two years, he says that the Bank expects inflation to be in the 2 to 3 percent range.

"This forecast embodies an expectation that productivity growth will improve somewhat as a result of the structural change occurring in the economy."

Looking abroad, Stevens says that the US economy is continuing a moderate expansion, while growth in China remains "quite robust overall".

While the acute financial pressures on banks in Europe have been alleviated considerably by the actions of policymakers, he says more action is needed.

With growth expected to be close to trend and inflation close to target, Stevens says that the RBA Board judged that the setting of monetary policy remains appropriate for the time being.

"The Board will continue to monitor information on economic and financial conditions and adjust the cash rate as necessary to foster sustainable growth and low inflation," he says.

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