The RBA on Tuesday voted to keep the cash rate on hold for the tenth straight month, despite calls in some circles for a reduction due to prevailing economic conditions.
In a statement announcing the decision, governor Glenn Stevens said that while Australia's terms of trade are very high, “indications are that the pace of near-term growth is unlikely to be as strong as earlier expected.”
Both local and global factors are to blame, including the current global “financial turmoil,” he said. But Stevens added that there are still reasons to expect solid medium-term growth.
Global economic conditions are likely to leave consumers and businesses adopting a more cautious attitude, and with domestic labor market concerns escalating, Australia will be no exception.
Australia's underlying inflation began to increase earlier this year, but the pick up rate has also been lower than had been initially projected.
“Taking into account all the recent information, the path for inflation may now be more consistent with the 2% to 3% target in 2012 and 2013,” Stevens said.
Stevens noted that some interest rates have now began falling organically - due in part to increased competition among lenders - and some other financial conditions have also been easing. But credit growth remains low and asset prices have declined.