RBA keeps rates steady for fifth straight month, sees 2-3% inflation rate in year ahead

The Reserve Bank has surprised few by leaving rates steady at 4.75% for the fifth straight month, saying inflation levels are consistent with the medium-term objective of monetary policy, and tipping inflation to fall within its 2-3% target band over the next 12 months.

The central bank said after its monthly meeting that the board had “judged that the current mildly restrictive stance of monetary policy remained appropriate in view of the general macroeconomic outlook.”

The RBA says the high Australian dollar, which reached a record of more than 104 US cents this week, was playing a role in moderating inflation, alongside the earlier decline in wages growth and strong competition in some key markets, which have worked to offset large rises in utilities prices.

“Overall, looking through these temporary effects, the Bank expects that inflation over the year ahead will continue to be consistent with the 2-3 % target,” it says, suggesting a rate rises is not in the offing any time soon. Before the statement, economists had mostly tipped at least one rate rise in 2011.

In a statement by Governor Glenn Stevens, the RBA described financial conditions for the global economy as “accommodative”, saying while the recent tsunami and earthquake will have a “noticeable effect on Japanese production in the near-term”, the global economy is continuing its expansion.

The RBA also tipped a “mild boost” to demand as the eastern seaboard recovers from the summer’s natural disasters, with production levels seen likely to recover over the months ahead.

“The natural disasters over the summer have reduced output and the resumption of coal production in flooded mines is taking longer than initially expected,” the RBA says.

The RBA drew attention to Australia’s record high terms of trade, surging national income and growth in national income, but noted continued caution in spending and borrowing from consumers, plus higher savings rates.

Overall credit growth “remains quite subdued, notwithstanding evidence of some greater willingness to lend,” the RBA says.

The central bank says while it expects employment to grow, it will likely do so at a slower pace than last year.