RBA leaves rates on hold
Update The Reserve Bank has defied expectations by leaving its key interest rate on hold for the first time in seven months as it waits for the full effect of previous rate cuts to spur the economy.
The central bank left the cash rate at 3.25%, the lowest since 1964, arguing that Australia is relatively well placed to weather the economic slowdown. Analysts had forecast at least a 0.25 percentage-point cut.
''The Australian financial system remains strong,'' RBA Governor Glenn Stevens said in an accompanying statement. Mr Stevens said the recent round of cuts delivered by the central bank over the past six months was ''working to deliver large reductions in interest rates to end borrowers.''
He also said that demand in Australia hasn't weakened ''as much as in other countries.''
Analysts said today's decision was a close call given the deteriorating outlook for most of Australia's main trading partners, which will eventually dent demand at home. The RBA, for now, is taking an optimistic view.
'Sunny statement'
''It's a sunny statement,'' said Su-Lin Ong of RBC Capital Markets. ''We they think that at this juncture they've done enough.''
''There's no denying that the global backdrop has weakened," she said. ''I still think it was a close decision today."
The share market was little moved by the news, falling only a few points on the announcement, before rising again. Both the benchmark S&P/ASX200 and All Ordinaries indexes ended the day down about 1% for the day.
The dollar jumped on the RBA's decision to leave rates unchanged, viewing the statement as a sign of confidence in the resilience of the local economy. It recently bought 64.11 US cents, up more than half a US cent on its level just before the RBA announcement.
Treasurer Wayne Swan said the Government's stimulus package had ''cushioned'' the economy but he reiterated things were likely to worsen before they improve.
''We are in a difficult time in our national economy and we face big global challenges,'' Mr Swan said.
''As I said before, things will get worse before they will get better.''
Today's pause comes after the Reserve Board slashed 4 percentage points from its key interest rate since September in a bid to prevent the global recession from taking hold in Australia.
Mixed signals
The RBA noted that the Federal Government's stimulus packages - totalling more than $52 billion - are yet to work their way through the economy, while interest rates are already about as low as they have ever been.
Full Story