The Reserve Bank of Australia (RBA) sparked a sharp sell-off in the Australian dollar when it went against the weight of market expectations and left its cash rate unchanged at 4.5%.The Australian central bank's decision helped quieten talk of the Austral
The Reserve Bank of Australia (RBA) sparked a sharp sell-off in the Australian dollar when it went against the weight of market expectations and left its cash rate unchanged at 4.5%.
The Australian central bank’s decision helped quieten talk of the Australian dollar reaching parity with the U.S. dollar, for the moment at least.
The currency dropped almost a full U.S. cent on the news as investors re-assessed their expectations of higher rates ahead. However, the Aussie dollar still remained at historically levels of around $US0.9575.
The RBA said the global economy grew faster than trend over the year to mid 2010, but would probably ease back to about trend pace over the coming year.
“Recent information is consistent with a more sustainable, but still strong, pace of growth in China and most of the Asian region,” the bank said.
In Europe and the United States, growth prospects appeared to be modest in the near term, a legacy of the financial crisis and its impact on private and public finances.
“Financial markets are still characterised by a degree of uncertainty, and are responding both to differences in growth outlooks between regions and evident strains on public finances and banking systems in several smaller countries in Europe,” the RBA said.
The bank said most commodity prices have changed little over recent months, and those most important to Australia remained very high.
Australian CPI inflation has been running at around 2.75% over the past year and that looked likely to continue in the near term, the bank said.
“The current stance of monetary policy is delivering interest rates to borrowers close to their average of the past decade,” it said.
“The board regards this as appropriate for the time being,” it said.
The RBA’s official rate compares with the Reserve Bank of New Zealand’s official cash rate of 3.0%, which is where economists expect it to remain for the rest of the year.
