Australia's Reserve Bank defied the market's and most economists' predictions by leaving official interest rates on hold (at 3.75%) at today's monthly RBA board meeting.
The widely held view was that the RBA would increase rates for the fourth time in as many meetings (the RBA board meets on the first Tuesday of each month with the exception of January). However, had they done so, it would have been unprecedented for them to move rates upwards at four successive meetings.
In the Bank's statement RBA Governor Glenn Stevens noted the unexpected strength of the local economy compared with conditions just 12 months ago, but against this cited the removal of the government's fiscal stimulus, and the fact that banks have already increased rates to borrowers by almost 1% more than the 0.75% increase in official rates since October 2009.
However, the final paragraph of the Bank's statement was clear in pointing out that rates remained lower than historical averages, and that if economic conditions continue to evolve as expected, monetary policy will need to be adjusted further to ensure inflation remains consistent with the target over the medium term.
In other words, borrowers can probably only breathe more easily for a month or two at the most.
