RBA shows cautious optimism in cash rate decision

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The RBA seems cautiously optimistic about the economy in its decision to leave the official cash rate on hold.

In its last meeting of the year yesterday, the Reserve Bank left the cash rate untouched at 2.0%. In his statement on the decision, RBA Governor Glenn Stevens said the economy showed signs that it could improve in the months ahead.

"While GDP growth has been somewhat below longer-term averages for some time, business surveys suggest a gradual improvement in conditions in non-mining sectors over the past year. This has been accompanied by stronger growth in employment and a steady rate of unemployment," Stevens said.

The RBA predicted that inflation would remain low, and was forecast to remain within the Bank's target band over the next one to two years.

"In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. While the recent changes to some lending rates for housing will reduce this support slightly, overall conditions are still quite accommodative," Stevens said.

But the decision to leave rates on hold does not rule out a cash rate cut in the year ahead, Stevens suggested.

"Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand. The Board will continue to assess the outlook, and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target."