Rate freeze continues in July

Reserve Bank of Australia leaves interest rates firmly on hold at 4.75 percent for the eighth straight month today

July 5, 2011

Lower than expected economic growth has seen the Reserve Bank of Australia (RBA) leave the official cash rate on hold at 4.75 percent for the eighth straight month today.

RBA Governor Glenn Stevens says while a gradual recovery from the floods and cyclones is taking place, the resumption of coal production continues to proceed more slowly than initially expected.

"The recovery will boost output over the months ahead, and there will also be a mild boost to demand from the broader rebuilding efforts as they get under way, but growth through 2011 is now unlikely to be as strong as earlier forecast," Stevens says.

"Over the medium term, overall growth is still likely to be at trend or higher, if the world economy grows as expected," he says.

Stevens says Australia's terms of trade are now at very high levels and national income has been growing strongly, though conditions vary significantly across industries.

"Investment in the resources sector is picking up strongly in response to high levels of commodity prices and the outlook remains very positive," he says.

Growth in employment has moderated over recent months and the unemployment rate has been little changed, near 5 percent.

"Most leading indicators suggest that this slower pace of employment growth is likely to continue in the near term," Stevens says.

On a positive note, he says while growth in credit to households has slowed there is a greater willingness to lend and business credit has expanded.

Finally year-ended CPI inflation is likely to remain elevated in the near term due to the extreme weather events earlier in the year.

"However, as the temporary price shocks dissipate, CPI inflation is expected to be close to target over the next 12 months," Stevens says.

"In underlying terms, inflation has been in the bottom half of the target range, though a gradual increase is expected over time," he says.

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