RBA keeps interest rates steady at 3.5%

7 Aug 2012, 5:30 pm   -   Source: AAP
The central bank kept its cash rate at 3.5 per cent after its monthly board meeting on Tuesday. (AAP)

The central bank kept its cash rate at 3.5 per cent after its monthly board meeting on Tuesday. (AAP)

The RBA kept the cash rate on hold at its August meeting.

The central bank has given no clear indication of when it is next likely to cut interest rates after a hands-off approach for the second consecutive month.

The Reserve Bank of Australia (RBA) kept its cash rate at 3.5 per cent after its monthly board meeting on Tuesday, as had been expected by the market.

The RBA also kept the cash rate on hold in July but cut in May and June and before that in November and December last year, taking official interest rates down by one and a quarter percentage points over that time.

The market is still pricing the cash rate at three per cent by the end of this year.

RBA governor Glenn Stevens said in a statement accompanying the latest rates decision that stance of monetary policy "remained appropriate".

He said inflation was expected to be consistent with the target and growth was close to trend but with a more subdued international outlook than was the case a few months ago.

"Labour market data show moderate employment growth, even with job shedding in some industries, and the rate of unemployment has thus far remained low," the statement said.

HSBC chief economist Paul Bloxham said the short statement that came with the decision was fairly neutral in its tone.

"I think it was interesting that he (Mr Stevens) said we have a more subdued international outlook than a few months ago and that they already got rates down ahead of that," Mr Bloxham said.

"It seems to be that they are suggesting that they are ahead of the game in terms of the global slowdown and indeed that's what we were expecting.

"It's even more explicit than what I had expected."

CommSec chief economist Craig James said the central bank had provided a very balanced view of the Australian economy and the case for and against a rate cut.

"It's a good assessment of where we are at the moment," he said.

"That the economy is tracking along in line with longer-term averages, inflation's under control, and globally there still remains a number of risks."

However, one possible concern for the RBA was the strength of the Australian dollar.

"The terms of trade has declined but the exchange rate remains high," Mr James said.

"It's going to be very much a watching brief for the Reserve Bank over coming months."

Tuesday's decision was widely expected - with all 15 economists surveyed by AAP last week saying the RBA board would not cut the cash rate at its August meeting.

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