Australia leaves interest rates on hold at 4.75 pct

Australia left interest rates on hold at 4.75 percent Tuesday, saying conditions were uncertain in Europe and the strong local dollar would help keep a lid on inflation.

A businessman passes by the Reserve Bank of Australia (RBA) building in Sydney. The Australian dollar spiked above parity with the greenback in October for the first time since it was floated in 1983, and the Reserve Bank of Australia (RBA) said the nation's terms of trade were "at their highest level since the early 1950s".

AFP - Australia left interest rates on hold at 4.75 percent Tuesday, saying conditions were uncertain in Europe and the strong local dollar would help keep a lid on inflation.

"The exchange rate has risen significantly this year, reflecting the high level of commodity prices and the respective outlooks for monetary policy in Australia and the major countries," said central bank governor Glenn Stevens.

"This will assist, at the margin, in containing pressure on inflation over the period ahead."

The Australian dollar spiked above parity with the greenback in October for the first time since it was floated in 1983, and the Reserve Bank of Australia (RBA) said the nation's terms of trade were "at their highest level since the early 1950s".

"National income is growing strongly as a result," it said.

There had been "very strong" jobs growth in the past 12 months -- with unemployment at 5.4 percent and record levels of participation -- with wages growth accelerating and inflation likely to be little changed in coming quarters, it said.

"Following the Board's decision last month to lift the cash rate, and the subsequent increases by financial institutions, lending rates in the economy are now a little above average," Stevens said.

"The Board views this setting of monetary policy as appropriate for the economic outlook."

The pause had been widely tipped by analysts after domestic growth slowed last quarter to financial crisis levels of 0.2 percent and eurozone finance worries were stoked by woes in Ireland and Hungary.

Stevens said "concerns about the creditworthiness of a number of European governments have again become the main focus of financial markets," with volatility increasing.

"At the same time, recent data suggest that the Chinese and Indian economies have continued to grow strongly and price pressures, particularly for food, have picked up in China as well as a number of other economies in Asia," he said. "Modest growth is continuing in the United States."

Analysts said the dovish statement, which noted cautious spending and borrowing in the household sector and subdued credit growth, showed the RBA was likely to keep interest rates on hold for a number of months.

"Today's decision by the RBA to keep the cash rate on hold was of little surprise, nor was the relatively benign statement," said IG Markets analyst Cameron Peacock.

"The frequency and magnitude of further tightening has substantially been wound back after a recent soft patch in local economic data that has included weak GDP and retail sales numbers," he added.

Australia's annual growth has eased to 2.7 percent due to slowing exports and a slump in commodity prices due to the bullish Australian dollar, which dropped to 98.91 US cents from 99.20 US cents before the rate announcement.

Australia, the first major western economy to raise interest rates after the global slump, has hiked its cash rate by 175 basis points since October 2009 as it rides a mining boom driven by Asian demand.