SYDNEY—Australia's central bank left interest rates unchanged at 4.75% Tuesday and said it expects inflation to remained contained over the "next few quarters," signaling that the bank is likely to sit on the sidelines well into 2011.
The decision left few surprised after data last week showed the economy grew at its slowest quarterly pace in two years in the September quarter and Reserve Bank of Australia Gov. Glenn Stevens said he was content with the level of interest rates.
Still, some economists were forecasting the Reserve Bank would raise rates again relatively soon in 2011. That timeline now looks to have been pushed back substantially. After the statement, financial markets moved the timing of the next rate increase from late 2011 into 2012.
"They are telling us they are comfortable for at least the next few quarters," said Rob Henderson, head of Australian Economics at the National Australia Bank. "There is no rush to hike rates."
A decision by major banks to sharply raise their mortgage lending rates in November, citing rising funding costs, also played a role in keeping the central bank's powder dry in December. The high Australian dollar has further tightened monetary conditions.
"Following the board's decision last month to lift the cash rate, and the subsequent increases by financial institutions, lending rates in the economy are now a little above average. The board views this setting of monetary policy as appropriate for the economic outlook," Mr. Stevens said in a statement.
Recent data on the economy have also showed shopkeepers are heading into a disappointing end-year sales period, adding to concerns about growth as government economic stimulus is withdrawn. Australian consumers have been cautious for some time, depressing retail sales.
Data earlier Tuesday showed a slump in construction stretching into a sixth consecutive month. The Australian Industry Group's Performance of Construction Index fell 1.8 points to 42.2 in November from October. An index reading below 50 points indicates contracting activity.
"[The RBA] are still very much focusing on medium-term outlook, but I think they believe they have done enough for a time and can sit on their hands," said Josh Williamson, senior economist at Citigroup.
Still, the Reserve Bank has retained a tightening bias, albeit one it looks unlikely to use for a while, economists said.
Wage pressures are growing but forward indicators of the job market suggest some slowdown in hiring is likely, Mr. Stevens said. Over the next few quarters, inflation is expected to be little changed, though it is likely to increase somewhat over the medium term if the economy grows as expected, he added.
Inflation in Australia remains within the Reserve Bank's 2% to 3% target band.
The Reserve Bank has led other central banks in tightening monetary policy, raising the cash rate target seven times since October 2009.
Despite recent soft data, the Australian economy is expected to grow strongly in 2011 as mining investment gathers traction and consumers throw off recent caution that has seen household savings rates soar.
The resources boom now engulfing the economy is the biggest in more than 100 years, with demand for exports of coal and iron ore surging on the back of strong demand from China, and elsewhere in Asia.
The Australian dollar was slightly weaker after the statement. At 4:30 GMT, it was trading at 99.02 U.S. cents, down from 99.10 U.S. cents just prior.
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