After cutting the overnight cash rate for two successive months in May and June, the Reserve Bank of Australia (RBA) retained the key lending rate on Tuesday to 3.5 per cent.

The RBA cited the slowdown of growth in the global economy in the second half of 2011 and recent indicators which suggest weakening in Europe and slower pace of growth in China as the bases for its decision.

"Conditions in other parts of Asia have recovered from the effects of last year's natural disasters, but the ongoing trend is unclear and could be dampened by the effects of slower growth outside the region," RBA Governor Glenn Stevens pointed out in a statement.

"The United States continues to grow at a modest pace. Commodity prices have declined, which is helping to reduce inflation and providing scope for some countries to ease macroeconomic policies," he noted.

The current rate of 3.5 per cent us the lowest level since November 2009. It was the result of four rate cuts out of seven monthly RBA meetings with a total of 1.25 per cent or 125 basis points shed from the benchmark lending rate.

However, since most of the lenders pocketed a portion of the rate cuts, the total rate cut passed on to Australian borrowers averaged 97 basis points. It is equal to a monthly savings of $180 for borrowers with a $300,000 25-year mortgage.

"The board judged that, with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance on monetary policy remained inappropriate," Mr Stevens said.

The decision was according to analysts' expectations.

"It will take a few months for the recent rate cuts to flow through to the economy and measure their impact. There's been two rate cuts totaling 75 basis points in two months, and we haven't seen the RBA move so dramatically in almost three years. If economic conditions deteriorate overseas or locally, there is still plenty of room for the RBA to lower the cash rate if it needs to," comparison Web site RateCity was quoted by The Herald Sun.

"They are clearly aware of the fragility in global economic activity, pointing to a slowdown in China and modest growth in the U.S. and unrest in Europe.... That sends the signal that they may need to keep our powder dry," The Sydney Morning Herald quoted St George acting chief economist Hans Kunnen.

"The statement is clearly flagging the fact that the international environment is less positive than a few months ago.... The subscript, if you like, is that if the international environment worsens any more, easing comes back on the agenda," Westpac Global Head of Interest Rate Strategy Russell Jones added.

Economists, however, expect more cuts in the future, with the time as the only main question.

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