Reserve Bank of Australia leaves rates on hold

12:50, October 05, 2010      

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The Reserve Bank of Australia (RBA) on Tuesday left the official cash rate unchanged for the fifth consecutive month at 4.5 percent.

In a statement, RBA governor Glenn Stevens said financial markets "are still characterized by a degree of uncertainty, and are responding both to differences in growth outlooks between regions and evident strains on public finances and banking systems in several smaller countries in Europe".

But Stevens said rates were likely to go up as part of a possible pre-emptive strike against inflation.

"If economic conditions evolve as the board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium- term target," he said in a statement accompanying the rates decision.

Tuesday's decision came despite recent strong speeches by RBA officials in which they indicated rates may need to rise soon.

The minutes from the RBA's September board meeting, coupled with the recent Financial Stability Review, also made strong cases for a change to monetary policy.

According to ABC News, most economists were expecting an increase in the official cash rate, but some economists said the uncertainty in the global economy was likely to have prompted the RBA to hold fire.

Analysts have predicted the banks will lift their rates by up to 0.25 of a percentage point above any official move as they try to recoup the higher costs of sourcing funds from overseas.

Meanwhile, economists now expected the central bank to lift rates at least once before the end of the year, given the inflationary risks as the economy gathers momentum.

Inflation rose by 3.1 percent in the June quarter, putting price pressures slightly outside the central bank's two to three percent tolerance band.

The inflation report for the September quarter is scheduled for release on October 27.

Source: Xinhua


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