In a move that probably surprised no one just a week out from the Federal Government's budget due to be announced next Tuesday, the RBA has left rates on hold at 3.0 per cent.
In announcing the decision the RBA noted that although the economy both locally and globally has continued to contract in the first few months of the year, there are signs of stabilisation in several countries, and a pick up in China and in several commodity prices.
The announcement also noted the gradual improvement in global financial markets, with equity prices off their lows, term spreads declining and capital markets re-opening. Against this they noted a continuing fragility in confidence and ongoing pressure on balance sheets, along with tight credit markets.
The Bank sees inflation reasonably contained, with labour markets likely to weaken further, although imported goods are likely to balance this out somewhat given the weak exchange rate.
The Bank included their usual caveat that they will "continue to monitor how economic and financial conditions unfold..." when considering any further reductions in the cash rate are required. Our guess is that there's not much room to move on the downside from here barring further major problems emerging from the GFC.
