Cash rate once again left unchanged

The Reserve Bank has decided not to cut rates at its 3 July board meeting, leaving the official cash rate at 3.5 per cent following relatively upbeat reports about the global and domestic economy.

Despite volatile conditions in Europe, the election outcome in Greece and recent banking decisions by European leaders last month alleviated some of the growing fears of a financial contagion to the rest of the world. The US Federal Reserve's forecast for growth and stabilising home prices in the country, coupled with more positive developments for the Chinese economy, further provided some good news.

As a result, policy makers were relatively confident about the domestic economy, which recorded a 4.3 per cent economic growth over the past year and 1.3 per cent growth since the March quarter. Business investment, particularly in the mining sector, as well as consumption, grew faster than expected in the first quarter of the year. Furthermore, business credit grew noticeably over the past four months with lending rates at below average levels.

"Members noted that the March quarter national accounts data implied that the economy had had more momentum since mid 2011 than had previously been indicated," said the RBA.

inflationary pressures have also overall remained contained despite economic growth, reflecting the high exchange rate and terms of trade remaining at historically high levels.

"Members continued to view it as appropriate for interest rates to be a little below average given evidence of slower global growth and the low rate of inflation in Australia."

"But with a material easing in monetary policy having occurred over the preceding six months or so, and with recent signs that the domestic economy had a little more momentum than had earlier been indicated, members saw no need for any further adjustment to the cash rate at this meeting," the RBA concluded.

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