BREAKING NEWS: RBA keeps rates on hold at 4.75%

The Reserve Bank has kept the cash rate unchanged at 4.75% this afternoon, in line with expectations, citing weak domestic economic data and a slower pace of growth for keeping on the sidelines.

The decision is in line with economists’ expectations, who said there was virtually no chance of a rate hike given weak data in the construction and retail sectors. Many now expect a rate hike towards the end of the year.

 In a statement, governor Glenn Stevens said the slow-down in growth is a continuation of the impacts from the Japanese earthquake and the “dampening” effects of high commodity prices.

“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.”

While Stevens notes Australia has “very high” levels of trade, and the national income has been growing, conditions have varied from industry to industry.

“A number of service sectors are also expanding at a solid pace.”

“In other areas, cautious behaviour by households and the high level of the exchange rate are having a noticeable dampening effect. The impetus from earlier Australian Government spending programs is now also abating, as had been intended.”

Stevens’ tone remains optimistic – unemployment has remained little changed, reports of skills shortage remain “confined” and growth in wages has returned to pre-downturn levels.

“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.”

RP Data research director Tim Lawless says it is likely that rates will remain on hold for a few months yet.

“Coupled with a weak housing market and sluggish retail conditions, we are seeing dwelling approvals remaining low and consumers continue to focus on saving rather than spending. “

“Unless we see a runaway inflation figure for the June quarter, which will be available at the end of July in time for the RBA’s August meeting, it looks like rates are set to remain at the current level.”