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Rates left on hold at RBA’s first 2016 meeting

The RBA has left interest rates steady at a historic low of 2 per cent at its first meeting for 2016.

The central bank last cut its interest rate by 25 basis points last February and again in May, taking the cash rate to the record low.

While the bank’s view remains neutral, RBA faces a trade-off between its desire to boost growth, to keep inflation in check, and the risks that lower interest rates could pose to financial stability with housing prices approaching dangerous territory in some Australian capital cities.

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Most economists agreed that the RBA would not cut rates at Tuesday’s meeting, despite pressures to ease rates and stimulate the economy remaining present.

The December quarter CPI figures show that the RBA’s preferred measures of underlying inflation just scraped in at the bottom of the bank’s two to three per cent target band.

Following the RBA announcement, the Australian dollar immediately jumped US0.2¢ to a high of US71.29¢.

But it was short-lived, with the rate quickly falling to US71.09¢

In anticipation of the decision, the dollar rose on Tuesday morning to trade at US70.97¢, up from US70.77¢.

RBA governor Glenn Stevens said there were “reasonable prospects” for growth in the economy and that inflation was close to target.

He also took note of solid domestic economic momentum despite recent global financial market volatility.

“Low interest rates are supporting demand, while regulatory measures are working to emphasise prudent lending standards and so to contain risks in the housing market,” he said in a statement.

“At today’s meeting, the board judged that there were reasonable prospects for continued growth in the economy, with inflation close to target.

“Over the period ahead, new information should allow the board to judge whether the recent improvement in labour market conditions is continuing and whether the recent financial turbulence portends weaker global and domestic demand.

“Continued low inflation may provide scope for easier policy, should that be appropriate to lend support to demand.”

– with AAP

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