UPDATE 11.40am: The Reserve Bank has left official interest rates on hold following its first board meeting of the year, signalling it has the space to cut further if necessary.
In a move widely expected by financial markets and economists, the Reserve left the cash rate at 3 per cent.
Governor Glenn Stevens said the bank had delivered a “significant easing” in monetary policy through 2012 which was still to have a full impact on the economy.
He said there were some positive signs, including a pick-up in consumer spending on some types of home goods and a lift in housing construction.
But the strong Australian dollar remained a drag on the economy while businesses and households continued to try to pay down debt.
“The board’s view is that with inflation likely to be consistent with the target, and with growth likely to be a little below trend over the coming year, an accommodative stance of monetary policy is appropriate,” he said.
“The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand.
“At today’s meeting, taking into account the flow of recent information and noting that there had been a substantial easing of policy as a result of previous decisions, the board judged that it was prudent to leave the cash rate unchanged.”
Mr Stevens said inflation remained within the Reserve Bank’s target band.
He said with the jobs market still soft, labour costs were likely to remain contained. Businesses were looking to lift efficiency.
“These trends should help to keep inflation low, even as the effects on prices of the earlier exchange rate appreciation wane,” he said.
“The bank’s assessment remains that inflation will be consistent with the target over the next one to two years.”
The bank’s decision follows the release of new figures confirming the property market has responded to last year’s rate cuts with the Australian Bureau of Statistics reporting a 2.9 per cent lift in Perth house prices through the December quarter.