Cash flow

Reserve Bank – Interest Rates Remain On Hold At 3.5% In September: Cashflow

Interest rates left on hold for third straight month

By Michelle Hammond
Tuesday, 04 September 2012

Interest rates have remained on hold for the third consecutive month, with the Reserve Bank board attributing the decision to “quite firm” consumption growth and low unemployment.


At its meeting today, the RBA board decided to leave the cash rate unchanged at 3.5%, although governor Glenn Stevens admitted growth in the world economy has softened after picking up in the early months of 2012.


“Current assessments are that global GDP will grow at no more than average pace in 2012, with risks to the outlook still on the downside,” Stevens said in a statement.


“Economic activity in Europe is contracting, while growth in the United States is only modest.”


“Around Asia generally, growth is being dampened by the more moderate Chinese expansion and the weakness in Europe.”


In Australia, Stevens said most indicators suggest growth has been running close to trend, led by large increases in capital spending in the resources sector.


“Consumption growth was also quite firm in the first half of the year, though some of that strength was temporary,” he said.


“Labour market data have shown moderate employment growth, even with job shedding in some industries, and the rate of unemployment has thus far remained low.”


Inflation remains low, with underlying measures near 2% over the year to June, and headline CPI inflation lower than that.”


Stevens said the introduction of the carbon tax is starting to affect consumer prices, and this will continue over the next couple of quarters.


“The bank’s assessment is that inflation will be consistent with the target over the next one to two years,” he said.


“Maintaining low inflation will, however, require growth in domestic costs to remain contained as the effects of the earlier exchange rate appreciation wane.”


Stevens said in light of previous cuts, interest rates are now a little below their medium-term averages, but the impact of those changes is still working its way through the economy.


“[However,] dwelling prices have firmed a little and business credit has picked up this year,” he said.


“The exchange rate has declined over the past month or two, though it has remained higher than might have been expected, given the observed decline in export prices and the weaker global outlook.”


“The board judged that, with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook… the stance of monetary policy remained appropriate.”

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