Economic Slowdown Forces RBA to Hold Interest Rates Unchanged Until Year-End

Analysts forecast that the Reserve Bank of Australia will keep the key lending rate at 4.75 per cent until year's end because of economic slowdown in the country and the uncertain global outlook.

The RBA hinted it would hold interest rates at current levels at its Sept. 6 board meeting, when it said it needs more time to assess the extent and duration of the global slowdown.

"For the present, however, members considered that the current setting of monetary policy left the board well placed to respond to evolving global and domestic economic condition," the board said.

The broad hint from the RBA contrasts with the forecast by the financial markets that there is a strong chance the RBA will reduce interest rates at its October meeting. Some sectors such as steelmakers have also been pushing for a cut in the benchmark rate.

But economists expect an interest rate increase over time, likely in 2012.

JPMorgan economist Helen Kevans said the next RBA move would likely be upward.

"Given global financial uncertainty and concerns about the global growth outlook, the RBA will probably be on the sidelines until next year," Kevans told AAP.

Westpac chief economist Bill Evans was more certain that there will be a rate reduction in December, based on the wording of the Sept. 6 statement that the RBA is prepared to respond to evolving economic conditions.

"In short there is very little evidence to support the tightening bias, which has now been abandoned, and the final wording in these minutes gives the board flexibility to cut rates at any time," Evans told AAP.

He pointed to the rapid deterioration of the global economic and the local labour market.

Other indicators that support Evans' theory are Standard & Poor's downgrade of Italy's debt rating and continued speculation by the financial markets on Greece's possible default.