RBA keeps rates on hold

The Reserve Bank has kept the cash rate at a record low of 2.5 per cent for its seventh straight board meeting.

It was widely expected that the cash rate would stay on hold, with all of the 33 economists surveyed by Bloomberg predicting the Reserve Bank would stay on the sidelines for another month.

The news pushed the Australian dollar up to US93.04c.

The central bank, which shifted to a neutral monetary policy stance in February, continued to indicate in a statement after its meeting today that it would pursue a "period of stability" in interest rates.

"In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target," RBA governor Glenn Stevens said in the statement.

"On present indications, the most prudent course is likely to be a period of stability in interest rates.

The bank has slashed interest rates by 225 points since November 2011, with the low interest-rate environment encouraging growth in the housing market.

But while the residential property market has boomed, business investment has remained cautious and the demand for labour has been weak.

The jobless rate is at a decade high of 6 per cent, and has been tipped by the RBA and the Treasury to edge up further over the next few months.

The central bank has also had to grapple with a resurgent Australian dollar. The strength in the local currency has threatened to undo the nascent growth in non-mining sectors of the economy as the resources investment boom fades.

The local currency's fall from parity since mid-April last year had been partly blamed for the surprise jump in inflation in the last three months of 2013.

A private survey by TD Securities and the Melbourne Institute released on Monday showed that the annual rate of inflation remained near the upper level of the Reserve Bank's 2 to 3 per cent target band.

Economists said while the Reserve Bank has been reluctant to ease the cash rate further amid concern that such a move could overheat the housing market, raising interest rates could also pushed the exchange rate higher.


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