The Reserve Bank has kept the official interest rate on hold this afternoon at 4.75%, in line with economists’ expectations, with the board writing that it will take more time for any effects from Europe and the United States to filter through.
Governor Glenn Stevens wrote that while conditions in global markets have continued to be unsettled, recent data suggests economies are beginning to soften overseas.
“Moreover, the uncertainty and financial volatility have reduced confidence, which could result in more cautious behaviour by firms and households in major countries,” he says.
“Recent events have led forecasters to reduce their estimates for global GDP growth, which is now expected to be about average this year and next.”
While the board noted that Australia’s terms of trade remain high, which has increased national income, and that investment remains high, households are still cautious. The board also noted stimulus from previous years is fading.
“While there remain good reasons to expect solid growth over the medium term, the indications are that the pace of near-term growth is unlikely to be as strong as earlier expected, due both to local and global factors, including the financial turmoil and related effects on business confidence.”
It appears the board is less concerned with inflation, noting that weaker conditions have contained price growth. “The likelihood of a significant acceleration in labour costs outside the resources and related sectors is lessening,” the statement says.
Stevens wrote the board will continue to judge the economic outlook for growth and inflation when deciding on changes to monetary policy.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
