Australian central bank unexpectedly holds interest rates

Feb 7, 2012, 3:59 GMT

Sydney - Australia's central bank surprised the market Tuesday by leaving its benchmark interest rate on hold at 4.25 per cent as it assessed the effects of two previous rate cuts.

The Reserve Bank of Australia had lowered the cost of borrowing by 25 basis points in November and in December, and a third easing had been expected.

'With growth expected to be close to trend and inflation close to target, the board judged that the setting of monetary policy was appropriate for the moment,' Governor Glenn Stevens said.

He said European economies were weak 'with risks still skewed to the downside' but that recent data from the United States suggested 'continuing moderate expansion after a soft patch in mid-2011.' He said growth was lower but still robust in China, a huge buyer of Australian commodities.

Most economists had expected a cut, but Ben Jarman, an economist at the investment bank JP Morgan Chase & Co, correctly predicted that the bank would sit on its hands.

'We know that monetary policy works with a lag, so in a sense, we don't really know the fallout of the first 50 basis points of easing that has been delivered,' Jarman told the national broadcaster ABC.