RBA extends interest rate pause

The Reserve Bank has left its key interest rate unchanged for another month, ignoring for now the gathering signs of a slowdown in global growth.

The central bank kept its cash rate at 4.75 per cent where it’s sat since Melbourne Cup Day last year.

The RBA’s decision was widely expected as the central bank attempts to weigh the threat of higher inflation from a rekindled mining boom against weaker growth for much of the rest of the economy. Turmoil on financial markets – which has knocked about 15 per cent off local share values in the past three months alone – was also not enough to prompt a rate reduction.

”It will take more time for evidence of any effects of the recent European and US financial turbulence on economic activity in other regions to emerge,” RBA governor Glenn Stevens said in a statement accompanying today’s rates decision.

”Thus far, indications are that economic activity is continuing to expand in China and most of Asia,” he added, citing Australia’s main export markets.

The RBA’s board had to consider a slew of mixed economic data over the past month. For instance the jobless rate surprisingly increased to 5.3 per cent last month from 5.1 per cent in August.

Against that, though, mining investment continues to stoke demand in the economy – even as commodity prices slump.

Data out today also showed Australia posted its second-largest trade surplus ever – at $3.1 billion – for August. Building approvals also rose 11.4 per cent, seasonally adjusted for the month, its best monthly increase since March 2010, and an indication of improving confidence in the volatile housing construction industry.

Chris Zappone, Domain.com.au

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