RBA leaves rates on hold for another month

Borrowers have been spared higher interest payments for at least another month after the Reserve Bank of Australia today decided to keep interest rates on hold for the eighth consecutive meeting.

The RBA board chose to leave the official cash rate at 4.75 per cent, the level reached when rates were last hiked on Melbourne Cup Day last November. Read the full RBA statement Chronology of interest rate movements since 1990 What the economists say Home loan guide

Although many economists predicted that rates would not be moved today, the decision was made against a backdrop of inflation which has stepped above the RBA's target band of 2-3 per cent.

Last week, ABS data showed that the consumer price index (CPI) rose 0.9 per cent in the June quarter, with the annual rate jumping to 3.6 per cent, its highest level since 2008 and up from 3.3 per cent in the March quarter, sparking speculation of a rate rise.

The RBA board members, though, also had to consider the impact higher borrowing costs would have on a patchy local economy. The global outlook is far gloomier, with the US today narrowly avoiding a crisis over its debt limit and the economies of most developed nations barely out of recession.

The Aussie dollar dropped on the decision, losing close to half a US cent to $US1.0937 from $US1.083.

What the RBA said

Reserve Bank governor Glenn Stevens said the board judged that it "was prudent to maintain the current setting of monetary policy, particularly in view of the acute sense of uncertainty in global financial markets over recent weeks".

But he noted that the RBA was mindful of how events overseas could affect the local economy.

"Downside risks have increased, however, as concerns have grown over the outlook for the public finances of both Europe and the United States," he said.

Economists' view

RBC Capital Markets economist Su-Lin Ong said the decision showed the RBA remained concerned with the medium-term inflation outlook.

"What’s more pressing is the uncertainty about the global backdrop and that’s dominating at the moment," she told BusinessDay.

"Greece and US debt ceiling probably dominated the discussion. In times of uncertainty the RBA has a tendency to sit on its hands and that what it’s doing now."