RBA keeps interest rates on hold


THE Reserve Bank will leave the cash rate unchanged at 4.5 per cent.

Monthly repayments on an average $300,000 standard variable home loan remain at $2070 unless banks act outside the RBA decision.

The majority of economists and analysts had expected the central bank to raise the cash rate by 25 basis points.

Hike in November

However, the reprieve for borrowers and home owners may be short lived, with the prospect of a November rate hike still "live", economists say.

In a statement accompanying the decision, RBA governor Glenn Stevens said he expected inflation, which monetary policy is designed to control, to remain within the RBA's target band of two to three per cent over the near term.

However, his statement also had a warning about future rate rises.

"If economic conditions evolve as the Board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target," he said.

ICAP economist Adam Carr said he would have been surprised if the RBA had lifted the rate in October because there had been too few economic indicators released during the previous month.

"It was the right decision. We haven't had any new data since August," Mr Carr said.

"I would have been genuinely surprised, analytically, had they done it. The case hadn't been made.

"We have got a lot of data coming in over the next month and if it comes in as expected, there will be a case to hike."

Most economists and analysts - including those from the big four commercial banks - were expecting the RBA to lift the rate to 4.75 per cent.

A rate rise of 25 basis points would have added about $50 to the monthly repayments on a 25 year, $300,000 mortgage.

The local dollar fell almost one US cent to 95.76 cents in the minutes after the decision was announced.

Australian bonds rose on the news, with the three-year futures contract rising to 95.19, from 95.04 just before the announcement.

Before the decision's announcement, the futures market had priced in a two in three chance of a rate increase. The market has now priced in a one in three chance of a November rate rise.

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