Garry Shilson-Josling

August 4, 2010

THE well-anticipated decision to leave the cash rate at 4.5 per cent has moved the spotlight to November 2 as the next most likely date for a rate rise.

After the June-quarter inflation figures last Wednesday turned out to be benign, with underlying inflation on target at 2.7 per cent, no one was expecting the Reserve Bank to raise interest rates yesterday.

And its explanation for the decision broke no new ground either. ”With growth likely to be close to trend, inflation close to target and the global outlook remaining somewhat uncertain, the board judged this setting of monetary policy to be appropriate,” the RBA said.

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The bank welcomed the largely positive stress-test results on European banks, released a week ago.

”Nonetheless, the global outlook remains somewhat more uncertain than a few months ago and this is reflected in the volatility of financial prices,” the bank said.

This means the upward tilt in the outlook for inflation might not result in higher interest rates – at least not for a while.

Last week’s consumer price index figures showed underlying inflation was inside the 2-3 per cent target range for the first time since the September quarter of 2007, but the RBA expects it to stay in the top half of the band in the coming year.

The next CPI report is due on October 27.

Source: The Age