RBA leaves cash rate unchanged

The RBA as expected decided to leave the cash rate unchanged this month, but said market trends pointed to an increase in inflation that could influence rates in the long-term.

Announcing its decision to keep the cash rate at 4.75%, the RBA said that it expected CPI inflation to be close to the target over the year ahead.

The cash rate has now stayed unchanged since November 2010.

But RBA warned that “the marked decline in underlying inflation from the peak in 2008 has now run its course.”

While the rising Australian dollar should help to keep down consumer prices over the next few quarters, over the long term inflation is expected to increase “somewhat,” the RBA said.

The board added that the global economy is continuing its expansion, led by strong growth in Asia, although the Japanese earthquake is having a major impact on Japanese production.

Australia's terms of trade are also growing to higher levels than expected months ago, and private investment is picking up.

There is continuing caution in spending and borrowing in the household sector, and the natural recent disasters are likely to have caused a decline in real GDP in the March quarter.

But RBA said it expects production levels to recover over the months ahead, so it believes that medium-term growth is expected to be at trend or higher.