BREAKING NEWS: Reserve Bank shocks market by leaving official cash rate at 3.75%

The board of the Reserve Bank of Australia decided to leave the current official cash rate at 3.75%, despite economists almost unanimously predicting a rise.

The shock move comes after data from ANZ revealed the number of job ads fell in January, raising doubts over the economy’s progress to recovery.

In a statement, RBA governor Glenn Stevens said economic conditions have remained stronger than expected, with household finances being support by the strong labour market. However, he said the impact of recent moves from lenders to raise interest rates above the official cash rate cannot yet be judged. 

“Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point.”

“Since information about the early impact of those changes is still limited, the Board judged it appropriate to hold a steady setting of monetary policy for the time being”.

Last month Westpac was criticised for raising its variable mortgage rates above the RBA’s increase of just 25 basis points.

Additionally, Stevens said inflation has declined from its peak in 2008, and that CPI is expected to remain inside the RBA’s target band of 2-3% over 2010. However, he also said business credit has been hit by the downturn.

“Business credit, in contrast, has continued to fall, as companies have sought to reduce leverage, and lenders have imposed tighter lending standards and in some cases sought to scale back their balance sheets. 

“The decline in credit has been concentrated among large firms, which generally have had good access to equity capital and, more recently, to debt markets; credit conditions remain difficult for many smaller businesses.”

“If economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term.”


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