7 Nov 2012

Interest rates held by RBA

6:13 am on 7 November 2012

The Reserve Bank of Australia kept interest rates on hold at 3.25% on Tuesday.

Governor Glenn Stevens said "recent outcomes on inflation were slightly higher than expected" and the new carbon tax was expected to lead to higher consumer prices.

AAP reports he said a soft labour market containing wage pressures and "some continuing improvement in productivity performance will be needed to keep inflation low''.

In a statement, Mr Stevens was more positive about the outlook for the United States and Chinese economies, although he remained concerned about Europe.

He noted that global financial markets had been more optimistic over recent months, and this had also fed through to a mild recovery in commodity prices after steep falls earlier in the year.

"Key commodity prices for Australia remain significantly lower than earlier in the year, though trends have been more mixed over the past couple of months, with some prices recovering some ground while others declined further," he said.

"The terms of trade have declined by about 13% since the peak last year, but are likely to remain historically high."

Looking at the domestic economy, Mr Stevens also noted that the effects of earlier rate cuts were starting to feed through to business borrowing, home values and share prices.

"Interest rates for borrowers have declined to be clearly below their medium-term averages and savers are facing increased incentives to look for assets with higher returns," he noted.

"Further effects of actions already taken to ease monetary policy can be expected over time."