The Reserve Bank of Australia (RBA) has announced its decision to leave the cash rate unchanged at 4.75 per cent.

 

The RBA’s board cited unsettled global financial markets combined with increasing uncertainty about both the prospects for resolution of the sovereign debt and banking problems in Europe and an overall dim outlook for global economic growth.

 

While the RBA announced it believed temporary impediments to global growth were lessening, recent data suggested a continuing period of soft economic conditions would prevail in both Europe and the United States.

 

“It will take more time for evidence of any effects of the recent European and US financial turbulence on economic activity in other regions to emerge. Thus far, indications are that economic activity is continuing to expand in China and most of Asia,” the RBA announced in a statement.

 

The RBA praised a highly successful month of August after a trade surplus of $3.1 billion was recorded by the nation’s exporters, shrugging off a fear that a strong Australian dollar would lead to significant falls in surplus growth.

 

“Investment in the resources sector is picking up very strongly and some related service sectors are enjoying better than average conditions,” the RBA announced.

 

However, the RBA cautioned that a contraction in household spending and consumer confidence are having a noticeably dampening effect on the economy.

 

The RBA also acknowledged that the impetus from earlier Australian Government spending programs have, as intended, begun to abate.

 

“While there remain good reasons to expect solid growth over the medium term, the indications are that the pace of near-term growth is unlikely to be as strong as earlier expected, due both to local and global factors, including the financial turmoil and related effects on business confidence,” the RBA cautioned. 

 

The RBA also observed that underlying inflation had stopped falling and had begun to increase, causing the Board to express its concern of a further pick-up in the near future.

 

The RBA found that the underlying pace of price rises was less sharp than initially indicated. The Board found that households are increasingly concerned over the possibility of unemployment rising.

 

The Board noted that financial conditions have been easing somewhat, with interest rates for some housing and business loans declining slightly due to increased competition and the fall in some funding costs in financial markets. The exchange rate has also declined from the very high levels of a few months ago. Credit growth remains low, however, and asset prices have declined.