RBA holds rates at 4.75 percent

The Reserve Bank of Australia (RBA) left the cash rate unchanged at 4.75 percent during its meeting in Sydney today; citing slow growth of the global economy and continued economic volatility in Europe and the US as drivers behind its decision.

The RBA has left rates at the same level for eight consecutive meetings now, with Governor Glenn Stevens citing various factors behind the decision, including more downside risks for the world economy over the next couple of years, as concerns grow “over the outlook for the public finances of both Europe and the United States.”

According to Stevens, Australia’s terms of trade are now at very high levels and investment in the resources sector is picking up, “But in other sectors, cautious behaviour by households and the high level of the exchange rate are having a noticeable dampening effect.”

“Precautionary behaviour by households also looks likely to keep some areas of demand weaker in the near term than earlier expected.”

The RBA also pointed to declining credit growth, softening asset prices and the impact of the high exchange rate for their part in creating tighter financial conditions than normal.

Stevens said year-end CPI inflation was high, impacted by extreme weather events earlier this year.

“As these effects reverse over the next couple of quarters, CPI inflation should decline. But measures that give a better indication of the trend in inflation have begun to rise over the past six months, after declining for the previous two years.”

Although inflation levels have remained consistent with the 2–3 per cent target on a year-ended basis to date, Stevens said the Board remains concerned about the medium-term outlook for inflation.

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