Widespread disappointment on rate decision

Industry, retailers and unions have questioned the central bank's decision to leave the cash rate unchanged following its monthly board meeting, when many market economists were predicting a further reduction.

Breaking a six-year trend of altering the cash rate on Melbourne Cup day, the Reserve Bank of Australia (RBA) on Tuesday held its key rate steady at 3.25 per cent in the wake of last month's stronger than expected inflation results of the September quarter.

"With prices data slightly higher than expected and recent information on the world economy slightly more positive, the board judged that the stance of monetary policy was appropriate for the time being," RBA governor Glenn Stevens said in a statement.

However, it would continue to monitor the effects of its previous interest rate cuts and the impact on growth and inflation in the period ahead.

The central bank had cut by 150 basis points in the past year.

The National Retail Association was disappointed the RBA didn't act this time round when trading conditions remained difficult but hoped it was not too late to save Christmas.

"We believe there is still time for the RBA to deliver a Christmas gift to business owners, workers and consumers, by cutting rates in December," chief executive Trevor Evans said in a statement.

Australian National Retailers Association head Margy Osmond said it was bad news and warned consumers could put the brakes on spending again in the lead-up to the holiday season.

Construction, Forestry, Mining and Energy Union national secretary Michael O'Connor said the decision was "completely baffling".

"The case for a Cup day cut from the Reserve Bank could not have been clearer," he said in a statement.

"Huge swathes of the economy are desperate for relief. Manufacturing is under enormous pressure due to a high dollar."

The local dollar rose above 104 US cents on the decision as financial markets perceived the RBA decision would support the value of Australian dollar-denominated assets.

Australian Chamber of Commerce and Industry director for economics and industry policy Greg Evans said given the weakness evident in the economy with very subdued levels of credit demand, investment and hiring intentions, business was disappointed with the decision.

"Given those pressures are unlikely to recede quickly, we would still expect that the Reserve Bank should be on path to cut rates in December," Mr Evans told reporters in Canberra.

Australian Industry Group chief executive Innes Willox agreed, saying he hoped to see a cut before Christmas to lift activity and take some pressure off the exchange rate.

"The strong dollar is a major impediment to businesses competing with imports or selling into export markets," Mr Willox said in a statement.

Housing Industry Association chief economist Harley Dale said a rate cut was needed with cracks already appearing in a tentative recovery in new home building, while renovations activity was falling, and housing prices being benign.

"Today's lack of action is inconsistent with the indication that was conveyed to households and businesses by a renewed easing of interest rates in October, which followed a mid-year period of steady rates and mixed messages," Dr Dale said in a statement.

Managing director of the mortgage broker network 1300HomeLoan, John Kolenda, went further, accusing the RBA of "losing the plot".

"Either the RBA is making it up as it goes along or it is failing to get its message across to the market, which is highly disruptive and damaging to confidence in itself," Mr Kolenda said in a statement.

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    0.9261-0.0026-0.28%
    AUDUSD=X
    0.5512-0.0022-0.40%
    AUDGBP=X
    0.6697-0.0024-0.35%
    AUDEUR=X
  • Commodities
    Commodities
    NamePriceChange% Chg