RBA leaves interest rate unchanged

Submitted 6/05/2009

APP

The Reserve Bank of Australia (RBA) has left the cash rate unchanged despite further signs of deterioration in the economy, which could see the unemployment rate hit 6 per cent this week.

Economists and financial markets had widely tipped the cash rate being left at a 49-year low of 3.0 per cent following today's monthly RBA board meeting in Sydney.

In April the central bank cut the rate by 25 basis points, bringing total reductions since September to 425 basis points.

Still, financial markets are pricing in at least another 50 basis points worth of reductions this year.

"Monetary policy has been eased significantly," RBA governor Glenn Stevens said in a statement.

Mortgage rates were at very low levels by historical standards and business loan rates were below average, reducing debt-servicing burdens considerably.

Those changes had yet to have an impact on the economy but, together with substantial fiscal initiatives, it would provide significant support to domestic demand during the period ahead.

"In assessing whether further reductions in the cash rate are required over the period ahead, the board will monitor how economic and financial conditions unfold and how they impinge on prospects for a sustainable recovery in economic activity," Mr Stevens said.

The RBA will release its quarterly monetary policy statement on Friday, which is expected to show downard revisions to its growth forecasts.