Reserve Bank leaves Australia's official interest rate unchanged at the historic low of 2.5 per cent

Updated

The Reserve Bank has left Australia's official interest rate unchanged at 2.5 per cent.

The move is in line with analysts' expectations.

In a statement, Reserve Bank Governor Glenn Stevens says Australia's economy continues to grow at below trend pace.

"This is expected to continue in the near term as the economy adjusts to lower levels of mining investment," he said.

"The unemployment rate has edged higher. There has been an improvement in indicators of household and business sentiment recently, though it is too soon to judge how persistent this will be.

"Inflation has been consistent with the medium-term target."

The RBA has left room for more rate cuts.

"The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target," the statement said.

Mr Stevens reiterated his concerns about the high value of the Australian dollar.

"The Australian dollar rose recently, but is still about 10 per cent below its level in April," he said.

"A lower level of the currency than seen at present would assist in rebalancing growth in the economy."

The local currency jumped by a quarter of a cent against the US dollar in the minutes after the decision was announced.

At 2:45pm (AEST), it was buying 93.72 US cents.

RBA has made 225 basis points of cuts since 2011

In August, the central bank cut the cash rate by 25 basis points to its lowest level since 1960.

The RBA has reacted to growing uncertainty about global and domestic economic conditions by cutting the official rates by 225 basis points since November 2011.

Today's decision comes as official figures show an improvement in retail spending in August.

Rate cuts since November 2011 Nov '11: 25 basis points to 4.5 per cent.

25 basis points to 4.5 per cent. Dec '11: 25 basis points to 4.25 per cent.

25 basis points to 4.25 per cent. May '12: 50 basis points to 3.75 per cent.

50 basis points to 3.75 per cent. Jun '12: 25 basis points to 3.5 per cent.

25 basis points to 3.5 per cent. Oct '12: 25 basis points to 3.25 per cent.

25 basis points to 3.25 per cent. Dec '12: 25 basis points to 3 per cent.

25 basis points to 3 per cent. May '13: 25 basis points to 2.75 per cent.

25 basis points to 2.75 per cent. Aug '13: 25 basis points to 2.5 per cent.

The Bureau of Statistics says retail sales rose by 0.4 per cent on a seasonally adjusted basis, after flat-lining for several months.

Sales were expected to rise by 0.33 per cent.

St George Bank senior economist Hans Kunnen says it is the strongest result in six months.

But he warns that on an annual basis, retail sales remain soft.

"Retail sales are still only growing at about 2.3 per cent which is hardly robust," he said.

"They've been a bit volatile and flat but 2.3 suggests to me the economy is still fairly soft and probably in need of a bit of a boost from the Reserve Bank at some stage."

Credit demand is "increasing"

Mr Stevens noted that the interest rate cuts over the past few years had an impact on asset values, such as house prices.

"The full effects of these decisions are still coming through, and will be for a while yet," he said.

"The pace of borrowing has remained relatively subdued to date, though recently there have been signs of increased demand for finance by households. There is also continuing evidence of a shift in savers' behaviour in response to declining returns on low-risk assets."

Concern has been growing over the past few months about the risk of the persistently low rates fuelling a property bubble in Australia.

Today's interest rate cut comes as the RP Data-Rismark house price index rises to its highest level on record.

Topics: business-economics-and-finance, economic-trends, industry, housing-industry, money-and-monetary-policy, markets, australia

First posted