Interpac Business and Migration Solutions Melbourne Australia

(September 7, 2010)

THE Reserve Bank has given little indication of what the future holds after leaving the cash rate unchanged at 4.5 per cent today. It's the fourth monthly rate pause in a row.

In his accompanying statement, RBA governor Glenn Stevens said recent information suggested the Australian economy was growing at trend pace.

"Business credit has stabilised and while credit conditions for some sectors remain difficult, evidence is slowly emerging of more willingness to lend," he said.

"The demand for labour has firmed over the past year in line with improving growth.

"After the significant decline last year, growth in wages has picked up somewhat, as had been expected.

"Through to mid-2011, underlying inflation is likely to be in the top half of the target zone, while CPI inflation will probably be just above three per cent for a few quarters due to the impact of the tobacco tax changes."

But ICAP economist Adam Carr said the statement provided little "meat" for economists to chew on.

"Their statement, there was nothing in it. They haven't mentioned the consumer, which is odd,'' he said."Clearly they just want to watch and wait. The fact that they've maybe firmed up ever so slightly their expectations on the domestic economy makes me think they are ever so slightly more optimistic on the economy, but I wouldn't emphasis that."

Mr Carr, who along with all 15 economists surveyed by AAP last week predicted Tuesday's decision, said he expected the cash rate to be at 4.75 per cent by year end."I expect they are waiting for September quarter inflation numbers," he said. "I suspect why there's no meat on this statement. They're waiting for the consumer price index (CPI)."

The September quarter CPI will be released on October 27.Meanwhile, the local dollar fell two tenths of a US cent on the rates announcement at 2.30pm (AEST), before recovering to 91.53 US cents.

JP Morgan economist Helen Kevans said the result was ``no surprise'' and the commentary was "quite balanced''. She said the RBA suggested conditions were easing offshore, but locally the outlook remained "pretty positive''. "The key things are still there - the terms of trade are still booming and solid business investment is moving in to underpin growth,'' Ms Kevans said.

She noted that in previous commentary the RBA saw households were becoming more cautious and hoped that would offset inflation pressures coming from the terms of trade and investment. "But they acknowledge in this statement that private demand has actually firmed, so they are wary of that and that will be something to look out for," Ms Kevans said.

She said on the basis of the RBA's statement the central bank would beginning tightening monetary policy in February 2011."But we do acknowledge the risk of an earlier move if conditions continue to improve offshore," she said."I'd suggest maybe November."