The West

The RBA has again kept the official cash rate on hold. Picture: AP.
The RBA has again kept the official cash rate on hold. Picture: AP.

The Reserve Bank board has used its first meeting of the year to leave official interest rates on hold.

But Governor Glenn Stevens has used his first public utterances of the year to signal an end to future rate cuts.

The official cash rate remained at 2.5 per cent, where it has stood since August. The Reserve’s key lending rate has not been this stable since early 2011.

Mr Stevens said economic growth was likely to remain below trend for some time with unemployment likely to increase.

Beyond the short term, however, growth was likely to quicken aided by low interest rates and a lower exchange rate.

“In the board’s judgment, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target,” he said.

“On present indications, the most prudent course is likely to be a period of stability in interest rates.”

The comments had an immediate impact on the Australian dollar which pushed up on the statement.

House prices, especially in Sydney and Melbourne, have climbed sharply in recent months while building approvals are almost 20 per cent higher than a year ago.

There are also signs of price pressures with measures of inflation ticking up over recent months, partly in response to the fall in the Australian dollar.

Mr Stevens tried to play down the result of the latest inflation measure, saying there had been a “faster than anticipated pass-through” of the lower dollar.

Markets and financial experts widely expected the move which came as the ASX shed $20 billion in value with the All Ordinaries down more than 80 points to its lowest point in six weeks.

The Japanese market is officially in correction territory while the Dow Jones is close to the point.

It follows concerns over the strength of the American economy and impact of the Federal Reserve’s determination to gradually taper its quantitative easing program.

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