Stevens waits for other countries to catch up

Australian Reserve Bank Governor Glenn Stevens' unexpected decision to keep borrowing costs unchanged gives his economy a chance to absorb a record series of rate increases and allow global counterparts to catch up.

"Being the only man hiking is a real problem - if you're that guy the higher exchange rate strangles parts of the economy," said Matthew Johnson, an interest-rate strategist at UBS AG in Sydney.

Policy makers kept the overnight cash rate target at 3.75 per cent in Sydney on Tuesday, confounding the forecasts of all 20 economists surveyed by Bloomberg for a quarter-point move and driving the nation's currency to its lowest level in six weeks.

Last year's 28 per cent surge against the United States dollar, after Stevens became the world's only central banker to raise borrowing costs three times, has eroded earnings at exporters including BlueScope Steel.

"The Australian dollar was everyone's favourite currency last year as investors went back into risk trades," said Mansoor Mohi-uddin, Singapore-based chief currency strategist at UBS AG.

"Now, because the central bank has clearly changed the short-term outlook, there will be some more profit-taking by investors who have been long on the Australian dollar."

The aussie fell on Tuesday to as low as US87.81c. Traders are betting there is only a 34 per cent chance of a quarter-point move when policy makers meet on March 2, according to Bloomberg calculations. Prior to Tuesday's decision, chances stood at 100 per cent.

Keeping borrowing costs unchanged at the central bank's first meeting since December 1 allows policy makers to judge the impact of previous increases on consumers and businesses, Stevens said.

The pause also comes amid signs that global credit conditions "remain difficult in the major countries as banks continue to face loan losses," he said.

- BLOOMBERG