RBA keeps interest rates on hold

The Reserve Bank has left interest rates on hold with the record low level to continue as the economy transitions away from mining investment.

As widely expected, the central bank held the official cash rate steady at 2.5 per cent.

Mining investment is set to decline significantly, but there are signs that other parts of the economy are starting to pick up, RBA Governor Glenn Stevens said in a statement accompanying the announcement.

"Signs of improvement in investment intentions in some other sectors are emerging, but these plans remain tentative, as firms wait for more evidence of improved conditions before committing to significant expansion," he said.

Mr Stevens reiterated that the bank's  preferred policy remains ''a period of stability in interest rates''.

RBA governor Glenn Stevens.

RBA governor Glenn Stevens.

Prior to the announcement, analysts rated the chances of any movement by the RBA as very small. Credit Suisse interest rate futures had priced in a 4 per cent chance of a rate cut on Tuesday.

As forecast by economists, the central bank noted the high value Australian dollar, particularly given recent falls in commodity prices.

In 2014, the price of iron ore, one of Australia's most valuable commodities, has plummeted more than 30 per cent and is sitting at 20 month lows.

By comparison, the local currency has risen more than 3 per cent.

The RBA also noted "unusually low volatility" in global financial markets, in what was one of the few points of difference in a policy statement almost identical to the one issued by the RBA in May.

Markets have been very stable in recent months, with gauges such as the the Chicago and ASX volatility indexes at near 12 month lows.

But the lack of movement in markets has led some to believe that investors have become complacent and are ignoring risks, prompting warnings from several of the world's central banks.

Bank of England deputy governor Charles Bean has been reported as describing the lack of volatility in financial markets as "eerily reminiscent" of the period before the global financial crisis.

smh.com.au

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