Australian borrowers will have to wait for at least another month for more interest rate relief after the Reserve Bank surprised pundits by leaving its key rate unchanged.
The Reserve Bank today kept its cash rate at 4.25 per cent, defying expectations of a third rate cut in a row.
The dollar rocketed on the news, jumping about one US cent to $US1.081 - a six-month high - within minutes of the announcement. It also touched fresh records against the euro and hit a 27 year-high against the pound.
"It's a pretty big surprise," said Market Economics managing director Stephen Koukoulas. "They were obviously very close to cutting interest rates and decided not to."
"They put a huge amount of weight on what's happening in the mining sector by the looks of this," he said. "So we'll see whether it's mining versus the rest of the economy - who wins out?"
The central bank took heart from recent signs that the US economy is picking up growth and receding concerns about the European debt crisis.
"Recent data from the United States suggest a continuing moderate expansion after a soft patch in mid 2011,'' RBA Governor Glenn Stevens said in a statement accompanying the decision. "Growth in China has moderated as was intended, but on most indicators remained quite robust through the second half of last year."
The RBA's decision may take the heat off the country's major banks - at least for now. Several of the banks had indicated that they may not pass on another rate cut by the central bank because their own borrowing costs continue to rise.
Next cut?
Most economists had predicted the RBA would slice another 25 basis points off the cash rate today. The consensus may now focus on the central bank's March meeting for that cut to take place.
NAB economist Ali Knight said there was not enough data to push the RBA toward a rate cut.
"It was a close call overall," said Ms Knight, adding that today's announcement by the RBA doesn't rule out future rate cuts.
"We do think they still have an easing bias," said Ms Knight.
NAB economists still expect one more rate cut in the next six months.
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