RBA keeps key rate at 3.25% in face of strong currency

The Reserve Bank of Australia kept its benchmark interest rate unchanged at 3.25%, saying its currency and inflation are higher than expected, the global outlook has brightened and the economy is still feeling the effects of more accommodative monetary policy.

The Australian dollar climbed to $1.0424 after the statement was released from $1.0367 immediately before. The kiwi fell to 79.21 Australian cents from 79.53 cents. The RBA was expected to cut the cash rate by a quarter point, according to a Reuters survey.

"With prices data slightly higher than expected and recent information on the world economy slightly more positive, the board judged that the stance of monetary policy was appropriate for the time being," governor Glenn Stevens says in a statement on the RBA website.

Monetary policy had become more accommodative over the past year and further effects of previous rate cuts – 150 basis points in the past year – "can be expected over time". 

Underlying inflation was about 2.5% in the year through September, consistent with the bank's medium-term target. Some of the consumption strength in the first half of the year has evaporated "but there have been some signs of ongoing growth".

The return to very strong growth in consumption "is unlikely".

Mr Stevens saysglobal growth is forecast to be "a little below average for a time" with downside risk to the outlook given the economic contraction in Europe.

Elsewhere, risks are more balanced, with the US recording moderate growth and data out of China suggestion growth in Australia's biggest market has stabilised, he says.

Prices of Australia's export commodities "remain significantly lower than earlier in the year".

In Australia, growth has been running "close to trend" in the past year, helped by large increases in capital spending in the resources sector. That investment is expected to peak next year, he says.

(BusinessDesk)

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