Australia’s central bank holds rates at 3.25pc

PUBLISHED : Tuesday, 06 November, 2012, 12:54pm
UPDATED : Tuesday, 06 November, 2012, 1:00pm

Australia’s central bank kept its main cash rate steady at 3.25 per cent on Tuesday, surprising some in markets who had looked for a cut given an uncertain global outlook, a high local dollar and lower export prices.

The Reserve Bank of Australia (RBA) made the announcement following its monthly policy meeting. Most analysts had felt the RBA would cut rates to 3.0 per cent, though markets had put the odds at less than 50-50.

Following the news the Australian dollar gained half a US cent, jumping to a session high of $1.0418 , showing a gain of 0.5 per cent on the day. It touched a peak of $1.0420 last week, its strongest since late September.

The RBA said recent indications on the world economy were more positive.

Last month it slashed 25 basis points off the cash rate, taking it to lows not seen since October 2009 when it first resumed hiking rates following the global downturn.

Central bank governor Glenn Stevens said the RBA “judged that the stance of monetary policy was appropriate for the time being”.

Stevens said while commodity prices were lower and employment was softening, growth had been running close to trend over the past year in mining-powered Australia and inflation was in the RBA’s preferred 2-3 per cent zone.

“Looking ahead, the peak in resource investment is likely to occur next year, at a lower level than expected six months ago,” he said.

“As this peak approaches, the board will be monitoring the strength of other components of demand.”

Stevens said global growth was forecast to be a little below average for a time, and risks to the outlook were on the downside, largely as a result of eurozone woes. But he said risks elsewhere “seem more balanced”.

“The United States is recording moderate growth, while recent data from China suggest growth there has stabilised,” he said.

Australia was one of the first developed economies to begin raising rates after the global financial crisis rattled markets worldwide, first lifting them in October 2009.

It began pulling back again in November 2011 when the central bank slashed the cash rate for the first time in more than two years to bring it down to 4.50 per cent. The rate has been declining ever since.