Interpac Business and Migration Solutions Melbourne Australia

(December 7, 2010)

THE Reserve Bank kept interest rates on hold today, as expected, and said the current level was "appropriate for the economic outlook".

The central bank held the official cash rate at 4.75 per cent and said lending rates were now a little above average, following last month’s RBA increase and the subsequent larger hikes by the major banks.

“Following the board's decision last month to lift the cash rate, and the subsequent increases by financial institutions, lending rates in the economy are now a little above average,” RBA governor Glenn Stevens said in a statement today.

The RBA has raised the official rate seven times since October 2009.

Financial markets have wound back expectations for rate hikes in 2011, this morning pricing just one standard rate hike, or 25 basis points, in the next 12 months.

Weak third-quarter economic growth, soft third-quarter inflation and a surprise slide in October retail sales dented rate hike expectations, although forward indicators on jobs, business investment and inflation suggest risks of inflationary pressures ahead.

Mr Stevens said today the significantly higher Australian dollar would “assist, at the margin, in containing pressure on inflation over the period ahead”.

“Over the next few quarters, inflation is expected to be little changed, though it is likely to increase somewhat over the medium term if the economy grows as expected,” he said.

China's hunger for coal and iron ore has a fuelled a once-in-a-century mining boom and propelled Australia's terms of trade -- the ratio of export prices to import prices – to the highest levels since the 1950s, boosting incomes and keeping unemployment low.

On the risks to the economy of wage inflation, Mr Stevens said: “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.”

The RBA board holds its next policy-setting meeting in February.

(Source:theAustralian)