RBA leaves interest rates unchanged

Tuesday 07 Aug 2012

The Reserve Bank has left its key interest rate on hold as it awaits clearer signals about the strength of the global economy.

As widely expected by economists, the central bank left its cash rate at 3.5 per cent. All but one of 27 economists surveyed by Bloomberg expected the RBA to leave rates unchanged at today’s monthly meeting.

‘‘The RBA seems comfortable with the current accommodative monetary policy settings given the downbeat and uncertain global environment,’’ said Moody’s Economy.com analyst Katrina Ell.

‘‘Unless the volatile situation in Europe deteriorates further, the most prudent strategy for coming months is to hold tight and gauge the impact of earlier monetary stimulus on the domestic economy,’’ she said.

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The RBA cut interest rates four times between November and June as the Australian economy slowed and concerns about the world economy grew. The central bank remains wary about Europe's ongoing debt issues, a point repeated today by RBA governor Glenn Stevens.

'"Financial markets have responded positively to signs of progress, but Europe will remain a potential source of adverse shocks for some time," said Mr Stevens said in the accompanying statement.

Dollar surge

The Australian dollar initially rose on the RBA decision, climbing back above the $US1.06 mark briefly before giving up its gains to trade recently at $US1.0585.

Earlier today, the dollar reached almost $US1.064, the highest since March 20 against the greenback.

The dollar has rallied from 99 US cents since the last interest rate cut by the RBA on June 5, making it the best performing major currency in the world, as tracked by Bloomberg.

Some economists, such as former RBA board member Warwick McKibbin, have called on the central bank to intervene by selling Australian dollars to drive it lower on international markets. In today's statement, the RBA acknowledged that the currency had been rising even as commodity prices declined.

"The exchange rate...has remained high, despite the observed decline in the terms of trade and the weaker global outlook," Governor Stevens said in the statement.

- Domain.com