3 Mar 2009

Australia's central bank leaves cash rate unchanged

10:29 pm on 3 March 2009

The Reserve Bank of Australia is keeping "its powder dry" in the face of coming tough times for the economy, leaving the official cash rate unchanged on Tuesday.

The decision to leave the rate at a 45-year low of 3.25% following its monthly board meeting came less than a day before the release of December quarter national accounts.

There is a risk the report could show the economy entered a "technical" recession in the final six months of 2008.

But Commonwealth Securities chief economist Craig James said the RBA's decision highlights its confidence in Australia's economic fundamentals.

"By keeping its powder dry today the Reserve Bank has plenty of ammunition to use if there is another, more dangerous downward leg to the global slowdown," Mr James said.

While many economists had predicted a further cut of between 25 and 50 basis points, they said there was always a chance the central bank would stay put on rates to gauge the impact of 400 basis points of rate reductions and the government's two economic stimulus packages.

Financial markets are still pricing in the risk of another 100 basis points of cuts this year.

RBA governor Glenn Stevens said "the board judged that the stance of monetary policy was appropriate for the moment," and that it "will consider the position again at its next meeting".

He said demand had not weakened as much as in other countries and Australia had not experienced the sort of large growth contractions seen elsewhere.

Australia is not officially in a recession.