The Reserve Bank saved Australians from higher mortgage rates and borrowing costs for another month, keeping official interest rates on hold.

At its meeting today, the Board decided to leave the cash rate unchanged at 4.75 per cent.

The move to keep rates on hold was widely predicted by market watchers as recent data showed parts of global economy was still sluggish.
Explaining the RBA’s decision, governor Glenn Stevens said “the global economy is continuing its expansion, but the pace of growth slowed in the June quarter.”

“The supply-chain disruptions from the Japanese earthquake and the dampening effects of high commodity prices on income and spending in major countries have both contributed to the slowing. The banking and sovereign debt problems in Europe have also added to uncertainty and volatility in financial markets over recent months.”

Mr Stevens said a key question is whether this more moderate pace of growth will continue. Commodity prices have generally softened of late, though they remain at very high levels. Despite the challenging international environment, the central scenario for the world economy envisaged by most forecasters remains one of growth at, or above, average over the next couple of years. A number of countries have tightened monetary policy but, overall, global financial conditions remain accommodative and underlying rates of inflation have tended to move higher.

Employment, inflation

Growth in employment has moderated over recent months and the unemployment rate has been little changed, near 5 per cent. Most leading indicators suggest that this slower pace of employment growth is likely to continue in the near term. Reports of skills shortages remain confined, at this point, to the resources and related sectors. After the significant decline in 2009, growth in wages has returned to rates seen prior to the downturn.

Year-ended CPI inflation is likely to remain elevated in the near term due to the extreme weather events earlier in the year. However, as the temporary price shocks dissipate, CPI inflation is expected to be close to target over the next 12 months. In underlying terms, inflation has been in the bottom half of the target range, though a gradual increase is expected over time.

RBA said the Board judged that the current mildly restrictive stance of monetary policy remained appropriate.