RBA shows neutral stance as cash rate remains at 3 per cent

The Reserve Bank of Australia (RBA) has left the cash rate steady, as expected, and signalled an end to its inclination to cut it any further.

The RBA's board held its monthly monetary policy (MPM) meeting yesterday.

At the conclusion of the meeting RBA Governor Glenn Stevens released a statement saying the cash rate would remain at 3.0 per cent, the 49-year low reached in April after a cut of a quarter of a percentage point.

The indication of a neutral stance came in the final paragraph.

"The board's judgment is that the present accommodative setting of monetary policy is appropriate given the economy's circumstances," the statement said.

This was in contrast to the corresponding sentence from the previous announcement, after the July 7 MPM, which said: "The board's current view is that the outlook for inflation allows some scope for further easing of monetary policy, if needed."

The latest comment concluded with the promise that the board "will continue to monitor how economic and financial conditions unfold and how they impinge on prospects for sustainable growth in economic activity and achieving the inflation target."

This comment differed from the July 7 announcement by the addition of the reference to inflation.

In other words, the RBA had seen the immediate monetary task was to avoid the risk that the economy would grow too slowly, but now sees a more balanced set of risks, with the chance of inflation picking up too much getting equal billing.

The shift into neutral gear was well anticipated. It could be gleaned from comments by RBA officials, including Mr Stevens, in the past week or two, and inferred from signs of improvement in the flow of economic data.

The futures market had given higher rates by early next year more chance than lower rates, while the overwhelming majority of economists polled by AAP last week said the downward move in rates, beginning in September last year, would not be extended before the move upwards began.

- AAP