The Reserve Bank of Australia has kept the cash rate at 2.5 per cent, as the local economy shows signs of improvement.
“The earlier decline in the exchange rate is assisting in achieving balanced growth in the economy, but less so than previously as a result of the higher levels over the past few months”, governor Glenn Stevens said in a statement.
“There has been some improvement in indicators for the labour market in recent months, but it will probably be some time yet before unemployment declines consistently.”
The RBA board believes the low level of its cash rate will help foster sustainable growth.
“Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time.”
“On present indications, the most prudent course is likely to be a period of stability in interest rates.”
The most recent interest rate movement was a quarter of a percentage point cut in August.
The RBA looks likely to leave rates on hold for at least the next few months, Commonwealth Bank senior economist Michael Workman said.
The central bank indicated there were signs of improvement for the business investment outlook.
“The RBA’s view is that activity in parts of the economy remains subdued though they indicated that there seemed to be some improvement coming in non-mining investment,” Mr Workman said.
“We may have to wait until the minutes are released to get more detail on what has changed, particularly for the business investment outlook.
“Market pricing for a rate rise is still not until the third or fourth quarter of next year, so it’s a long way off.”
HSBC chief economist Paul Bloxham said there were no surprises in the statement from the RBA that comes with the interest rates decision.
“They did not jawbone the currency lower even though they could have decided to do that,” he said.
“They do seem reasonably comfortable that Australia’s growth is continuing to rebalance.
Mr Bloxham said local economic growth will be strong enough by the end of the year for the Reserve Bank’s “period of interest rates stability” to end.
“We still think the RBA is unlikely to deliver further rate cuts and the next move for rates will be up and it could come around the end of the year,” he said.
“It depends on China and we think Chinese economic growth will lift in the second half of the year.”
