The Reserve Bank of Australia (RBA) retained the current overnight cash rate of 3.5 per cent on Tuesday. The central bank's decision did not surprise the banking community which had anticipated the unchanged rate.
RBA Governor Glenn Stevens, in a statement, even cited the positive contribute of Australian's mining sector to the local economy despite indicators that the resource sector is on a slowdown following the shelving of major projects.
"In Australia, most indicators available for this meeting suggest growth has been running close to trend, led by large increases in capital spending in the resource sector," Mr Stevens said."Consumption growth was also quite firm in the first half of the year, though some of that strength was temporary," he added.
Prior to the RBA decision announcement, analysts had cited the worsening economic data as the reasons why the central bank would likely not touch the key lending rate, particularly Monday's data which showed the largest decline in monthly retail sales in seven years.
Besides the slump in retail data, company profitability also went down for the third straight quarter, the manufacturing sector continues to shrink and job advertisements in August fell 2.3 per cent from July.
Beyond Australia's lackluster economic data, including the release of gross domestic product data on Wednesday and unemployment statistics on Thursday, economists said the key to RBA's cash rate decision would be major economic decisions in Europe and the U.S. this month and China's growth direction.
Commenting on the Chinese economy, Mr Stevens said, "Growth in China remained reasonably robust in the first half of this year, albeit well below the exceptional pace seen in recent years. Some recent indicators have been weaker, which had added to uncertainty about near-term growth."
HSBC chief economist Paul Bloxham opined that with the recent reduction of growth forecast for China, the RBA would likely cut interest rates by another 25 basis points in the fourth quarter of 2012.
Another key factor to the RBA likely retaining the current overnight cash rate is that inflation, at 2.2 per cent from January to August, is close to the low end of the central bank's target range.
At least 11 of 13 economists surveyed by AAP believe that a rate cut would be made in the last quarter of 2012.
"We think there is still scope for the RBA to lower rates further. Admittedly it seems pretty reluctant, so we think they probably won't do very much in the next few months," AAP quote RBA senior economist Su-Lin Ong.
Similar RBA decisions were forecast by 24 economists surveyed by Bloomberg, as quoted by ABC. It is the third month in a row that the RBA retained the current key lending rate after cutting it in the middle of the year.
To contact the editor, e-mail: