RBA keeps rates on hold

Inflation curbed by volatility

By Charlie Corbett
Thu 06 Dec 2007

The RBA kept rates on hold yesterday and said inflation concerns were tempered by a slower growth outlook.

The Reserve Bank of Australia (RBA) yesterday left interest rates on hold at 6.75 per cent.

The RBA said it was concerned about inflation but recent volatility in global markets was acting as a restraint on growth. 

The news will come as a relief to investors, but not as a surprise.

Few in the market actually believed the central bank would hike rates again so soon after the 25 basis point November rise and so near to Christmas.

The beleaguered Australian consumer is still reeling from higher petrol and food prices as well as higher mortgage rates.

The RBA's accompanying statement took a cautious view and hinted at slower growth.

"Inflation on a year-ended basis ... is likely to be above 3 per cent in the first half of 2008 and to decline somewhat thereafter," the statement said.

"Sentiment in global credit markets has deteriorated recently ... and prospects for growth in the major economies appear to be weakening. It now appears likely that global growth will be closer to trend in 2008, after several years of above trend growth."

It warned, however, that high prices for food, energy and natural resources continued to pose a significant risk to inflation across the world.

The RBA said the pressures in Australia arising from the global financial turmoil had been less pronounced than elsewhere and the flow of credit to sound borrowers did not appear to have been impaired.

But it also urged caution.

"Borrowing costs have risen appreciably since mid year, particularly for business borrowers, as a result both of changes in monetary policy and market-driven increases in funding costs for intermediaries," it said.

Go to today's InvestorDaily news

More stories by this author