Interest rates unchanged at 2.75 per cent

Updated

The Reserve Bank of Australia (RBA) has left the official interest rate on hold at an historic low of 2.75 per cent.

The decision was in line with the expectations of a number of analysts, who argue the RBA is looking for less volatility in the Australian share market before adjusting monetary policy.

The Australian dollar dropped after the announcement, and was buying 91.9 US cents around 5.00pm AEST.

In statement, RBA governor Glenn Stevens said there are signs Australia's economy is growing at a pace below the long-term average.

"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 over the past year and growth in labour costs has moderated."

The RBA board has left scope for a rate cut in the near future.

"It decided that the stance of monetary policy remained appropriate for the time being," the statement said.

"The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand."

Room to move

Treasurer Chris Bowen believes the RBA still has considerable room to move in coming months.

"If we see that the economy needs more support because global growth becomes less stable or other factors change, the Reserve Bank does have the capacity for changes into the future," he said.

Meanwhile, the Housing Industry Association (HIA), which represents Australia's biggest builders, says the decision will prolong the weakness in new home building activity.

“The scope for further reduction in the cash rate exists, despite the RBA's concerns about inflation," HIA's senior economist Shane Garrett said.

"It must be remembered that the inflationary impacts of the recent dollar decline will be limited by the considerable slack that exists across sections of the economy as well as the use of fixed price contracts with suppliers."

The Australian Retailers' Association says the decision is frustrating as retailers face rising business and wage costs.

The RBA has cut 200 basis points from the cash rate since late 2011.

Topics: business-economics-and-finance, economic-trends, money-and-monetary-policy, government-and-politics, australia

First posted