RBA Keeps Cash Rate on Hold at 4.25%

The Reserve Bank of Australia (RBA) held the cash rate unchanged at 4.25%.  The RBA said: "At today's meeting, the Board noted that interest rates for borrowers have declined to be close to their medium-term average, as a result of the actions at the Board's previous two meetings. With growth expected to be close to trend and inflation close to target, the Board judged that the setting of monetary policy was appropriate for the moment. Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy."

The Bank previously previously cut the cash rate by 25 basis points at its November and December meetings, meanwhile the RBA last increased the interest rate by 25 basis points in November last year.  Australia reported annual consumer price inflation of 3.1% in Q4 last year, compared to 3.5% in Q3, 3.6% in Q2, and 3.3% in Q1, and 2.7% in the December quarter of 2010, and only just outside the Bank's inflation target of 2-3%.  

The Australian economy expanded 1.0% in the September quarter (1.4% in Q3), after contracting -0.9% during the March quarter due to the impact of natural disasters; placing year on year GDP growth at 2.1% in the September quarter, 1.1% in the June quarter, and 1.2% in the March quarter.

Following the announcement the AUDUSD jumped from about 1.07 to as high as 1.08 as traders reassessed their Australian interest rate path views.  The Australian dollar (AUD) has gained about 6% against the US dollar over the past year, after reaching parity and climbing as high as 1.10 last year; the AUDUSD exchange rate last traded around 1.08

The RBA next meets on the 6th of March this year, and will release its February meeting minutes on the 21st of February.

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