RTTNews - Tuesday, the Reserve Bank of Australia left its key interest rate unchanged as expected for the fourth month. The official cash rate now stands at 3%, the lowest level in 49 years.

The Board judged that the present accommodative setting of monetary policy is appropriate, given the economy's circumstances. RBA Governor, Glenn Stevens said, 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.

Economic conditions in Australia proved to be stronger than expected a few months ago, with notable resilience in consumer spending and exports. Also, measures of confidence recovered a good deal of ground. This indicates that the risk of a severe contraction in the Australian economy has abated.

Accordingly, the most possible outcome in the near term is a period of sluggish output, with consumer spending likely to slow somewhat and investment remaining weak. Further, stronger dwelling activity and public spending would commence to give more support to overall demand and growth is likely to firm into 2010.

Yesterday, Nouriel Roubini, the New York University economist who predicted the recent financial crisis, said he expects the Australian economy to grow only 2% in 2010, while the U.S. is estimated to expand 1%.

Last week, while addressing the Anika Foundation Luncheon in Sydney, Stevens said downturn in Australia may not turn out to be one of the more serious ones of the post-War era, in contrast to the experiences of so many other nations.

Given the earlier drop in energy and commodity prices and effects of weaker demand on prices and labor costs, inflation is gradually moderating, Stevens said in a statement today. This moderation is set to continue over the year ahead. Again, the higher exchange rate over the recent months would also help this moderation.

Regarding credit, Stevens holds the view that business borrowings continued to slow as companies postponed investment plans and tried to reduced leverage amid tight lending standards. Big firms have good access to equity capital and debt market accessibility appears to be improving as well. In the meantime, housing credit was solid and dwelling prices increased over recent months.

Elsewhere, a report from the Australian Bureau of Statistics revealed that retail sales dropped 1.4% month-on-month in June, after rising in each of the previous three months. Total retail sales amounted to A$19.4 billion.

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