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Interest rates hold steady at 2%

By Mark Beale

THE Reserve Bank of Australia has left the official interest rate on hold following last month’s historic low of 2%.

The decision comes as no surprise after all 29 economists surveyed by Bloomberg indicated that they expected the cash rate to remain unchanged in June.

In his post meeting statement, RBA Governer Glenn Stevens said while the global economy is expanding at a moderate pace, some key commodity prices are much lower now than they were a year ago, creating increased supply from Australia.

Mr Stevens said interest rates are expected to start increasing again later this year

“In Australia, the available information suggests the economy has continued to grow, but at a rate somewhat below its longer-term average,” the statement read.

“Household spending has improved, including a large rise in dwelling construction, and exports are rising.

“But a key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors and this is likely to persist over the coming year.

“Public spending is also scheduled to be subdued. Overall, the economy is likely to be operating with a degree of spare capacity for some time yet.

“With very slow growth in labour costs, inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.

“In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending.

“Credit is recording moderate growth overall, with stronger lending to businesses and growth in lending to the housing market broadly steady over recent months.

“Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities. The Bank is working with other regulators to assess and contain risks that may arise from the housing market. ”

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