The Reserve Bank has kept interest rates on hold at its first board meeting of the year, after reducing the cash rate to a historic low of 3 per cent in December.
A majority of economists had tipped the RBA to stay its hand, with financial markets pricing in just a 16 per cent chance of a rate cut today.
The dollar slipped nearly half a cent on the decision to the day’s low of $US1.0398 as the accompanying statement by RBA governor Glenn Stevens was considered fairly dovish, indicating the next move by the bank could be another cut.
‘‘The board judged that it was prudent to leave the cash rate unchanged,’’ Mr Stevens said in the statement.
But he added that, with annual inflation currently within its target band of 2 to 3 per cent, the RBA had room to cut the cash rate further if needed.
‘‘The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand,’’ he said.
‘‘The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target over time.’’
Citi senior economist Joshua Williamson said the Reserve Bank’s statement was more upbeat than its December statement, and had taken a ''glass-half-full'' approach to the Australian economy.
‘‘What this is suggesting is that the Reserve Bank is quite happy to wait and give the previous interest rate cuts some more time to actually gel with households and business,’’ Mr Williamson said.
‘‘They certainly think they’ve got the option of allowing them more time before they make another response. But of course, as each particular board meeting occurs throughout the year, I think the window for further rate cuts is actually falling.
‘‘... But I think the comment they’ve made that there’s already been a significant easing of monetary policy suggest that they are at the tail-end of that.’’
Mr Stevens said the full impact of the four interest rate cuts in 2012 would take more time to become apparent.
‘‘There are early indications of a pick-up in dwelling construction; and savers are starting to shift portfolios towards assets offering higher expected returns,’’ he said.
‘‘On the other hand, the exchange rate remains higher than might have been expected, given the observed decline in export prices, and the demand for credit is low, as some households and firms continue to seek lower debt levels.’’
Sydney real estate agents welcomed the unchanged cash rate, saying that following a strong start to the property year, another rate would have been unnecessary.
But the Australian National Retailers Association’s chief executive, Margy Osmond, said retailers were ‘‘anticipating a slow start to the year’’ because of the Reserve Bank’s decision.
‘‘Despite some weak inflation suggesting there is room to cut, the RBA has chosen to adopt a ‘wait and see’ approach. Retailers don’t need to be so cautious, they know what they will see.’’