RBA keeps rates on hold at 4.75%

The Reserve Bank of Australia has decided to keep the cash interest rate at 4.75%, as widely predicted by economists.

Glenn Stevens, governor of the RBA, says that the bank’s board views the rate as “appropriate for the economic outlook” following last months’ decision to raise the official rate and “subsequent increases by financial institutions.”

In a nod to the controversy caused by the rate increases by several major banks above the official RBA level, Stevens adds that lending rates are now “a little above average.”

Setting out the reasons for the interest rate freeze, which will be an unsurprising but welcome relief to retailers in the lead-up to Christmas, Stevens says that there are “concerns” over the creditworthiness of several European countries but that the Chinese and Indian economies were continuing to grow.

He adds: “For Australia, the terms of trade are at their highest level since the early 1950s, and national income is growing strongly as a result. Recent information indicates that, as had been expected, private investment is beginning to pick up in response to high levels of commodity prices.”

“In the household sector thus far, there continues to be a degree of caution in spending and borrowing, which has led to a noticeable increase in the saving rate.”

“Asset values have generally been little changed over recent months and overall credit growth remains quite subdued, notwithstanding evidence of some greater willingness to lend.”

“Employment growth has been very strong over the past year, though some leading indicators suggest a more moderate pace of expansion in the period ahead. After the significant decline last year, growth in wages has picked up somewhat, as had been expected. Some further increase is likely over the coming year.”

Huw McKay, senior economist at Westpac Institutional Bank, says: “Recalling that the governor went out of his way to give market pricing for one additional rate hike a stamp of approval in his recent testimony, we see no reason to deviate from the forecast profile that we took into today.”

“We expect the board will not see the need to adjust policy again until the June quarter next year, by which time the investment boom will have unambiguously seized the growth baton.”

Craig James, senior economist at CommSec, adds: “The Reserve Bank is clearly in ‘wait-and-see’ mode on interest rates. This is clearly great news for all concerned, allowing Aussies to get on with life, get a little more confidence back, and start spending and investing again.”

“Even though rates are on hold, the threat of higher rates in 2011 together with lofty utility charges and higher petrol prices will ensure that consumer conservatism continues into the New Year.”