Reserve Bank keeps rates on hold

The Reserve Bank has left official interest rates on hold while warning the Australian dollar remains above its “fundamental” value in the face of falling commodity prices.

Following its ordinary monthly meeting, the bank left the official cash rate at 2.5 per cent. It last moved the rate at its August meeting last year.

Analysts and financial markets had not been expecting any change, with bank governor Glenn Stevens saying there was “likely to be a period of stability in interest rates”.

But the governor did signal the bank remained concerned about the strong Australian dollar which ahead of the meeting was worth US93.3 cents.

“The exchange rate… remains above most estimates of its fundamental value, particularly given the declines in key commodity prices,” he said.

“It is offering less assistance than would normally be expected in achieving balanced growth in the economy.”

Australia’s most important export, iron ore, fell in overnight trade to $US87.10 a tonne.

The WA Budget forecast it would average $US122 a tonne through 2014-15.

Mr Stevens said there appeared to be a gradual improved in business conditions and a recovery in consumer sentiment which suggest there was “moderate growth” in the economy.

While resources sector investment was falling there were positive signs out of other areas.

Unemployment hit its highest level in a decade last month.

Mr Stevens said the jobless rate was likely to remain elevated for some time.

“The recorded rate of unemployment has increased recently, despite some improvement in most other indicators for the labour market this year,” he said.

“The bank's assessment remains that the labour market has a degree of spare capacity and that it will probably be some time yet before unemployment declines consistently.”