RBA Maintains Cash Rate At 49-Year Low

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Tuesday, the Reserve Bank of Australia left its interest rate unchanged at a 49-year low for the fifth straight month. The cash rate now stands at 3%.

RBA Governor, Glenn Stevens said the board will continue to adjust monetary policy so as to foster sustainable growth in economic activity and inflation consistent with the target. Stevens added, "The Board's judgment is that the present accommodative setting of monetary policy remains appropriate for the time being."

He noted that economic conditions in Australia was stronger than expected with resilience in consumer spending, exports and business investment. Confidence indicators also recovered. Demand would possibly soften in near term in those areas where spending was brought forward by policy initiatives.

Due to financing constraints, capital spending is also likely to be held back for a while. However, investment might not be as weak as earlier estimated for the year ahead. Higher dwelling activity and public demand will also begin to give support to spending soon. Hence, growth is likely to firm going into 2010, said Stevens.

Further, unemployment has not risen as far as had been expected. Moderation in labor costs and earlier decline in energy and commodity prices helped to lower inflation. But, measures of underlying inflation remained higher than the target on the latest reading.

Stevens added that underlying inflation should continue to moderate in the near term, but the likelihood of inflation being persistently below the target now looks low.

Overall credit growth remained modest. While, business borrowings declined, housing credit has been solid. Supported by stronger-than-expected economic conditions and increased willingness to accept risk amongst investors, large firms had good access to equity capital and debt market.

In an opening statement to the House of Representatives standing committee meeting on August 14, Stevens said it would be appropriate for the central bank board to start adjusting interest rates back towards normal levels provided the situation warrants no more exceptional monetary stimulus. The timing and pace of those adjustments, if and when they come, will be a matter of careful consideration.

Tuesday, the Reserve Bank of Australia left its interest rate unchanged at a 49-year low for the fifth straight month. The cash rate now stands at 3%. (Market News Provided by RTTNews)