RBA keeps interest rates on hold

Australia's central bank has decided to keep the cash rate at 3.0%, a move widely expected by analysts.

"The Australian economy contracted in the latter part of 2008, and this has continued in 2009 to date, with both domestic and international demand weaker," RBA Governor, Glenn Stevens, noted. "Capacity utilisation has fallen back to about average levels, and will decline further over the rest of the year. With demand for labour weakening, growth in labour costs will probably also fall."

Mr Stevens advised that the housing sector had been boosted by the enhanced First Home Owners Grant, but businesses were yet to commit to reinvestment in their companies.

"Australian markets have seen a decline in term spreads and firmer equity prices over recent months," he said. "Borrowing for housing is picking up, particularly among first-home buyers. Business borrowing, on the other hand, is declining, as companies curtail investment plans and seek to reduce leverage, in an environment of tighter lending standards."

"Monetary policy has been eased significantly. Market and mortgage rates are at very low levels by historical standards and business loan rates are below average, reducing debt-servicing burdens considerably."

"In assessing whether further reductions in the cash rate are required over the period ahead, the Board will monitor how economic and financial conditions unfold, and how they impinge on prospects for a sustainable recovery in economic activity," Mr Stevens concluded.

Posted Tuesday 5th of May 2009, 2:41 PM