No move on rates for 5th straight month

(AAP) - The central bank has decided for a fifth straight month to keep interest rates at historic lows and provided little guidance on when the inevitable rate hike will occur.

Reserve Bank of Australia (RBA) on Tuesday left the overnight cash rate at a 49-year
low of three per cent, as widely expected, citing stronger Australian economic
conditions and resuming growth in the global economy.
RBA governor Glenn Stevens said the present setting of monetary policy was
appropriate for the current and stronger-than-expected local economic conditions.
The bank would "continue to adjust monetary policy" to foster sustainable economic
growth and maintain the bank's target inflation range of two to three per cent, he
said.
The statement lacked the more hawkish tone hoped for by some market observers,
Nomura Australia chief economist Stephen Roberts said.
However, Mr Roberts said the inclusion of a line that said the "likelihood of
inflation being persistently below the target now looks low" was a clear indication
the central bank had come to the end of its rate cutting cycle.
"What they're doing there is make it clear there is little likelihood of rate cuts
going ahead," Mr Roberts said.
"But there was some surprise that they weren't hawkish.
"They could be waiting for some months before they come through with a rate change."
One of the central roles of monetary policy is to maintain an inflation target while
supporting employment.
The RBA has kept the cash rate steady at three per cent since its April board meeting.
Following a run of positive economic data in July and August, the debt futures
market has fully priced in a 25-basis point rate rise by November.
And in Tuesday's statement, Mr Stevens said resilient sectors of consumer spending,
exports and business investment and improving measures of confidence had helped
support economic activity.
"Higher dwelling activity and public demand will also start to provide more support
to spending soon and, hence, growth is likely to firm going into 2010," Mr Stevens
said.
But Mr Roberts said he believed the bank would hold off raising rates until mid-2010.
"It does tend to rule out, at this point, a rate hike as early as October," Mr
Roberts said.
"My position has always been that it will take to the middle of 2010 before they can
start to hike rates and gather the information they require to be confident that a
sustainable recovery is underway.
"I still stick with that and don't see any reason to change that."
RBC Capital Markets senior economist Su-Lin Ong said the RBA statement was
consistent with an inevitable rise in the emergency low setting of the cash rate as
the economy continues to improve.
"Overall, it is signalling an eventual move towards the removal of excessive
stimulus and consistent with this idea that the three per cent cash rate is not
appropriate for the economy," she said.
"There does not appear to be a huge urgency in the statement today, but it is clear
that the longer the data prints on the upside, the more likely we will be moving
towards the start of a tightening cycle."
Ms Ong said RBC had brought forward its forecasts for interest rates, with two,
25-basis points rises in the cash rate in November and December instead of the March
quarter of 2009.
TD Securities senior strategist Annette Beacher said the RBA's accompanying
statement indicated the central bank was "in neutral".
"The new information for us was the fact that they just said the board would adjust
monetary policy," Ms Beacher said from Singapore.
"It doesn't say up, it doesn't say down. That is neutral."