BREAKING NEWS: RBA keeps official interest rate unchanged at 4.25%

The Reserve Bank has defied economists’ expectations by keeping the official interest rate on hold at 4.25% at its meeting this afternoon, noting modest economic recovery overseas.

The move comes despite several economists predicting the rate would fall, following disappointing data from the retail, construction and property sectors, along with inflation remaining within the RBA’s 2-3% target band.

In a statement, governor Glenn Stevens said growth in the United States has begun to pick up, along with growth in China, and noted pressures on European financial systems have eased since mid-2011.

“Much remains to be done to put European sovereigns and banks on a sound footing, but some progress has been made.”

“Financial market sentiment, though remaining skittish, has generally improved since early December. Sharemarkets have risen and term funding markets have re-opened, including for Australian banks, albeit at increased cost compared with the situation prevailing in mid-2011.”

Along with offshore expansion, Stevens noted the Australian economy is growing close to trend, although some sectors are performing better than others.

“Labour market conditions softened during 2011 and the unemployment rate increased slightly in mid-year, though it has been steady over recent months.”

As economists noted, the RBA is pleased with inflation, noting that it has declined as expected. Stevens also said that inflation will fall over the next two quarters.

And given that growth is expected to be close to trend, and inflation close to target, “the Board judged that the setting of monetary policy was appropriate for the moment”.

“Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy.”