Interest rates on hold

The Reserve Bank of Australia has decided not to lift interest rates at its board meeting today, leaving the official cash rate at 7.25%.

In a statement accompanying the decision, Reserve Bank Governor Glenn Stevens says while inflation remains relatively high, there are some early signs economic growth is moderating.

That, combined with higher interest rates and tighter borrowing conditions imposed by banks in response to the global credit squeeze and slowing global growth is working to take the pressure off inflation, Stevens says.

And, significantly, Stevens suggests an increase in the first quarter 2008 CPI figure due later this month would not necessarily prompt the RBA to raise rates further.

“In the short term, inflation is likely to remain relatively high, and both the CPI and underlying measures will probably rise further in year-ended terms in the March quarter. However, inflation should decline over time, provided demand slows as expected,” he says.

Real Estate Institute of Australia president Noel Dyett says the RBA’s decision to keep rates on hold is the right one.

“The wait-and-see approach is sound given the shifting mood in the housing market. While the full impact of the previous rises will not be clear until March and June quarter data are available, anecdotal evidence from REIA members suggests that the housing market is cooling in cities which had seen a considerable increase in activity in the latter half of 2007. The RBA has made the right decision to stop now, before too much pain is caused,” Dyett says.