Reserve Bank official rate remains unchanged at 3.75 per cent

Monday February 8, 2010

The Reserve Bank of Australia has announced that it will leave the official cash rate unchanged at 3.75 per cent after assessing the various economic factors that impact the national economy.

The national economy has been deemed as ';stronger than expected' by the central bank after its latest meeting with the full effects of the fiscal stimulus on consumer demand having now declined. This has left the strong labour market outcomes and net worth recovery to support household finances. In fact the Reserve Bank found that public infrastructure spending is now boosting demand along with an upturn in housing construction, further bolstered by the strong Australian resources sector. This too was highlighted against the low unemployment rate which has remained well below the dire predictions made throughout 2009 along with the fact that over 10 million Australians are employed now.

When it comes to inflation it reported expected declines, assisted by the 2008 decline in commodity prices and the decline in private sector labour costs during 2009. Additionally inflation was impacted by the latest surge in the Australian dollar exchange rate and a slowdown in the growth in demand.

"Inflation is expected to be consistent with the target in 2010," according to a statement from the Reserve Bank.

Glenn Stevens, Governor of the Reserve Bank of Australia stated that the majority of assessing factors have reported good results including:

• Credit housing prices have expanded
• Dwelling have also increased
• Business credit has declined (due to tighter lending standards and scaled back balance sheets) mainly for larger businesses
• Smaller businesses still report hard credit conditions

When it came to the issue of banks and their own interest rates, Governor Stevens and the Reserve Bank of Australia remained positive on the balance and the overall effects on both the market and individuals.

"Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point. Since information about the early impact of those changes is still limited, the Board judged it appropriate to hold a steady setting of monetary policy for the time being."

"Interest rates to most borrowers nonetheless remain lower than average. If economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term." Governor Stevens stated in a release from the central bank.

When it comes to the global economy, the global GDP is predicted to remain steady with to trend pace in 2010 and 2011 with the global economy reported as ';growing' as the Reserve Bank states that most global financial markets function better than they were a year ago.

However, the overall expansion is predicted to be modest in the bulk of major countries where the financial crisis took greater effect, leading to continued excess capacity.

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