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In the minutes of the monthly monetary policy meeting on April 5, the RBA said its board had noted that loan rates facing businesses and households were “a little above average levels”, thanks to earlier official rate increases.

The RBA said that was appropriate, given the need to keep inflation consistent with the two to three per cent medium term target the central bank imposed on itself in 1993.

The minutes revealed an understandable preoccupation with the disastrous events in Japan and the floods in Queensland.

But the RBA said that in making its decision to keep the cash rate steady it would “look through” the effects of the floods, which would lift headline inflation and depress gross domestic product growth in the March quarter.

And despite the earthquakes and tsunami in Japan, the most likely outcome was that the prices for Australia’s main exports would “remain at high levels for some time to come”.

As a result, businesses investment, particularly in the extractive industries, was still expected to rise sharply.

“A strong pick-up in business investment remained the central element in the medium-term outlook,” the RBA said in the minutes.

“Members noted that a major challenge was whether the economy could accommodate the expected high rate of investment without undue pressure on costs.”

So far, however, pressures in the labour market had been localised.

“Liaison with firms suggested that wage growth was increasing in mining and related industries and some skilled occupations, though pressures in the labour market had not become widespread.”

And the RBA acknowledged that the pace of employment growth had not only slowed since late 2010 but that forward indicators suggested it would continue “at a more moderate pace than seen last year”.

The minutes show the RBA sees no likely need to raise the cash rate in the near term.

The closing comment in the minutes made it clear it was not a line-ball decision to keep the cash rate steady, especially since the lending rates were already on the high side of normal.

“Members therefore did not see a case to change the cash rate.”

The RBA’s view on monetary policy tends to change bit by bit over time until the case to move becomes stronger than the case to sit pat.

Accordingly, the “no case to hike” assessment should remain dominant for a few months at least, barring some sudden, unanticipated change in the economic outlook.

AAP

Tags: banks, economy, finance, interest rates, lending, property

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