RBA keeps rates on hold

The Reserve Bank of Australia on Tuesday left the official interest cash rate at 2.5 per cent

The decision, which was widely expected, means the rate has been on hold for 12 months, the longest single period since 2006. Most economists don't expect the RBA to touch interest rates at least until around the middle of next year.

This is despite recent signs of an improvement in the Australian economy, including  a slight rise in inflation for the June quarter, better consumer sentiment and a small uptick in retail trade.

Economists said the headline growth of 3 per cent in the second-quarter inflation was in line with Reserve Bank and market expectations. Positive retail sales and lending data in the last month may give a bit more impetus to the local economy, but after a soft second quarter, the Reserve Bank will want to see more consistency before changing its outlook.

The headline inflation figure was similar to the 2.9 per cent posted in the preceding three months. The more important underlying figure, of 2.8 per cent, was slightly above expectations, but remained inside the 2 per cent to 3 per cent band used by the RBA to target inflation.

The strength of the Australian dollar has weighed heavily on RBA governor Glenn Stevens' deliberations in recent month, as it is out of step with Australia's declining terms of trade and makes non-commodity exports less competitive globally.

About a month ago he tried to talk it down during a speech in Hobart, but the Aussie's status as a safe-haven currency and the yield spread over other developed market assets has kept it in a band between US93.0 cents and US95.0 cents since early June.


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