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RBA Leaves Rates on Hold

RBA

The Reserve Bank of Australia has left interest rates on hold at 2.5 percent at its September board meeting today.

The official cash rate, which is already at a record low, was cut by 25 basis points last month.

With the country about to go to the polls and the last cut still to make a visible impact, economists had widely predicted that the rates would hold steady.

In a statement accompanying the decision, RBA governor Glenn Stevens said growth was still below trend and would stay that way for a while as the economy moved away from one driven by the mining sector.

"Recent information is consistent with global growth running a bit below average this year, with reasonable prospects of a pick-up next year," he said.

"Commodity prices have declined from their peaks, but generally remain at high levels by historical standards. Inflation in most countries remains well contained."

Mr Stevens noted that the Australian dollar was still high by historical levels despite falling 15 per cent since April, currently around 90 US cents.
The currency’s average level since it floated in December 1983 is 75.5 US cents.

"It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy," he said.

"The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target."

JP Morgan economist Ben Jarman said the wording of the RBA’s statement had barely changed between August and September.

But he said the central bank had indicated it was waiting to see the effects of rate cuts in May and August flow through to the economy.

"They’re just reminding us that policy easing does work with a lag and we haven’t yet seen the impact of what the RBA did over the last couple of months," he said.

However, Mr Jarman said the RBA was still leaning towards cutting the cash rate again in the next few months.

"We still think the way they describe the balance of risks around growth that they still have an easing bias."

Some economists suggested the central bank would wait to see the September inflation data before making another move.

National Australia Bank senior economist David de Garis said there was room for another rate cut before the end of 2013 – even if the Aussie dollar falls further – with unemployment forecast to push through 6.0 percent.

"The RBA have made it pretty clear that even with the Aussie dollar going down, they still expect inflation to be within their target bands and so there’s not going to be a barrier to another cut," Mr de Garis said.

Alex Parsons, CEO of RateCity, said more than 80 percent of borrowers hold home loans with the major banks and many are likely to be paying over a thousand dollars more than necessary.

"If your home loan rate has a five in front, you’re probably paying too much and it’s time to ask your lender for a discount or consider refinancing into a comparable mortgage with a more competitive rate."

The Reserve Bank has delivered four rate cuts since late last year.

Story source: www.ninemsn.com.au

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