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RBA leaves interest rates on hold

THE Reserve Bank has decided to leave official interest rates unchanged at 4.5 percent, the bank announced this afternoon.

Statement by Glenn Stevens, Governor: Monetary Policy Decision

The global economy has continued to expand over recent months, consistent with a trend pace of growth. The expansion remains uneven, with the major advanced countries recording only modest growth overall, but growth in Asia and Latin America, to date, very strong. There are indications that growth in China is now starting to moderate to a more sustainable rate. In Europe, while output in some key countries has been improving recently, prospects for next year are more uncertain given the budgetary constraints governments face and the pressure on euro area banks. US growth has looked stronger in the first half of 2010 but the pace of labour market improvement is slow.

Caution in financial markets has been evident in the past couple of months, driven principally by concerns about European sovereigns and banks but also by some uncertainty about the pace of future global growth. Financial prices have been more volatile and equity prices and government bond yields in major countries have declined. Some tightness in funding markets is evident, though not on the scale seen in late 2008. Commodity prices are off their peaks but those most important for Australia remain at very high levels, and the terms of trade are approaching their peak of two years ago.

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