RBA: Interest rates on hold

Christmas cheer from borrowers as RBA says official interest rates will stay on hold after last month’s shock rise.

The Reserve Bank has left interest rates unchanged, providing relief for borrowers and retailers in the crucial shopping weeks before Christmas.

The central bank kept rates at 4.75 per cent – the level it raised them to last month – amid signs of weakness in parts of the economy not benefiting from the rekindled mining boom.

Today’s decision matched the expectations of economists and investors, unlike the last two monthly meetings when the RBA surprised pundits with a rates verdict in defiance of the consensus among analysts.
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The central bank opted to keep rates steady after a string of weaker economic figures in recent weeks, including data showing the economy expanded by a disappointing 0.2 per cent in the third quarter. The non-farm sector shrank during the period.

More recently, data for October showed retail sales dropped 1.1 per cent for the month even before the RBA lifted its key interest rate by 25 basis points in November.

The rate move prompted all the major banks to tack on additional rate rises of their own, sparking public anger and prompting the government to propose reforms to increase competition among banks. Treasurer Wayne Swan may release details of those changes as soon as tomorrow.

While the overall economic recovery remains patchy, the central bank is keen to keep prices in check. One key concern has been the strength of the jobs market, with analysts tipping the unemployment rate will drop to 5.2 per cent from 5.4 per cent when the Australian Bureau of Statistics releases labour force figures for November on Thursday.

Before today’s RBA decision, investors were betting the official interest rate would be at 5 per cent in a year’s time.

The RBA board does not meet in January – except in exceptional circumstances when an extraordinary meeting can be called – so any move on official rates is unlikely to come before February.

Story by Chris Zappone , domain.com.au

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