BREAKING NEWS: RBA leaves interest rates on hold

The Reserve Bank has met analysts’ expectations and kept interest rates on hold this afternoon at 3%, despite rising unemployment, falling house prices and concerns that the swine flu scare has hurt the prospects of a global economic recovery.

RBA Governor Glenn Stevens says the economy is slowly beginning to improve, but it still has a long way to go.

“Conditions in global financial markets remain generally on a path of gradual improvement, with equity prices off their lows, term spreads declining and capital markets re-opening,” he said in a statement.

“Nonetheless, confidence remains fragile and balance sheets are under pressure from the effects of economic weakness on asset quality. Credit remains tight. Continued progress in restoring balance sheets remains essential to durable recovery.”

Stevens also said that growth in labour costs will also fall, along with inflation, and that monetary policy has “eased significantly”.

“Market and mortgage rates are at very low levels by historical standards, and business loan rates are below average, reducing debt-servicing burdens considerably. Much of the effect of these changes is yet to be observed.

“The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead.”

Stevens said the board will continue to monitor how economic conditions will impinge on prospects for future recovery.

The RBA shocked many economists and analysts last month by cutting the official cash rate by 25 basis points from 3.25% to 3%.

But the impact of that cut was blunted because the banks refused to pass on the full cut to mortgage holders and business borrowers.

The RBA has slashed rates from 7.25% to 3% since September 2008 in a bid to revive the flagging economy.