CANBERRA—Reserve Bank of Australia (RBA) Governor Glenn Stevens says there are tentative signs that domestic demand is slowing, suggesting the central bank has finished raising official interest rates.
While this is good news for homebuyers suffering under 12 official interest rate rises since May 2002, economists say it does not mean the RBA will be in a position to cut rates any time soon.
The central bank left its key cash rate unchanged at a 12-year high of 7.25 per cent after today's monthly board meeting - a decision widely expected by economists.
Federal Treasurer Wayne Swan welcomed the decision but again warned the retail banks they should carefully consider the consequences of independently raising rates again.
"Today's Reserve decision is a welcome reprieve for working families who have been doing it tough after eight official rate rises in a row (in the past three years)," Mr Swan told journalists in Canberra.
He said while global pressures are pushing up borrowing costs and impacting on commercial banks, they must realise that Australian families are under tremendous financial pressure.
Announcing today's rate decision, Mr Stevens said as a result of the recent monetary policy decisions and independent changes to rates by banks, the overall tightening in financial conditions since the middle of 2007 has been "substantial".
"That is working to foster the moderation in demand growth that will take pressure off inflation," Mr Stevens said in a statement.
"In the short term, inflation is likely to remain relatively high, and both the CPI and underlying measures will probably rise further in year-ended terms in the March quarter.
"However, inflation should decline over time, provided demand slows as expected."
The RBA has already tipped that the March quarter consumer price index on April 23 will show the annual rate of inflation at four per cent, well above the central bank's two to three per cent target.
In February it forecast the CPI at 3.5 per cent by the June quarter, before gradually easing to three per cent by June 2010.
"The statement implies to us that a May rate hike is now very unlikely, even in the event of relatively high Q1 inflation readings," Lehman Brothers chief economist Stephen Roberts said.
"It would seem to require several months of data pointing to high, sticky inflation and strong economic growth to drive any further rate increases."
Opposition Leader Brendan Nelson also welcomed the rate decision but urged the government not to further punish struggling families with its "war against inflation".
"The Reserve Bank has been quite bullish in increasing interest rates at the same time that (Prime Minister Kevin) Rudd and Mr Swan have been putting on some hairy-chested performance about further cutting government expenditure," Dr Nelson told journalists in Brisbane.
"And we're very concerned that the people who are going to be most affected by this, and that's families and small businesses, are really going to pay the price for the so called war against inflation.
"And it's important for us to remember there is an inflationary challenge but there is no inflationary crisis."
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