RBA Keeps Cash Rate Unchanged At 4.25%

The Reserve Bank of Australia on Tuesday decided to keep its benchmark cash rate unchanged at 4.25 percent for a second consecutive time, as economic growth is expected to be close to trend and inflation close to target. The decision was in line with economists' expectations.

In a statement today, RBA Governor Glenn Stevens said the Board judged that the current setting of monetary policy was appropriate for the moment.

"Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy," he said. Most information on the Australian economy continues to suggest growth close to trend overall, with differences between sectors and considerable structural change, the policymaker noted.

Stevens said interest rates for borrowers have generally risen slightly since the Board's previous meeting, but remain close to their medium-term average. Despite a fall in the terms of trade, the exchange rate has risen over recent months, the policymaker noted.

He said that consumer price inflation has declined as expected and will fall further over the next quarter or two. Over the coming one to two years, and abstracting from the effects of the carbon price, the bank expects inflation to be in the 2-3 percent range.

Regarding economic developments in Europe, Stevens said the acute financial pressures on banks in Europe have been alleviated considerably by the actions of policymakers, though there is more to do to put European banks and sovereigns onto a sound footing for the longer term and Europe will remain a potential source of shocks for some time yet.

RBA said growth in China, Australia's major trading partner, has moderated as was intended. However, most indicators remained quite robust overall. Earlier last month, the central bank trimmed the economy's growth forecast to 3.5 percent for the year ending June 2012 from the previous forecast of 4 percent. Downgrading the outlook, the RBA said it reflects the weaker outlook for global economic growth, with the uncertainty about the European situation expected to weigh on household and business spending decisions.

The Australian Bureau of Statistics is slated to publish the preliminary gross domestic product figures for the December quarter on Wednesday. The economy is forecast to expand 0.7 percent quarter-on-quarter, slower than the 1 percent growth in the preceding three-month period.