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Cash rate held

Cash rate held

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Date Published : Tuesday, July 01, 2008

The board of Australia's national bank has announced that it has decided to leave the official cash rate unchanged at 7.25 per cent for another month.

In a statement, the governor of the Reserve Bank of Australia (RBA) Glenn Stevens said that "inflation in Australia has been high over the past year in an environment of limited spare capacity and earlier strong growth in demand".

Mr Stevens insisted that the cash rate needs to remain stable in order to restrain demand and reduce inflation in the country as financial conditions have tightened since the middle of 2007.

He added that rising inflation was a result of a number of factors, including additional rises in interest rates, tougher credit standards for borrowers, difficult conditions in global markets and earlier decisions made by the bank's board.

According to the governor a "tightening in financial conditions" in conjunction with soaring oil prices and other factors is helping to restrain demand, with more subdued household spending patterns in recent months and slower loan and credit expansion.

"Inflation is likely to remain relatively high in the short term, and the CPI (consumer price index) will be further boosted in coming quarters by the recent rises in global oil prices," he predicted.

"Looking further ahead, inflation in both CPI and underlying terms should decline over time."

The latest decision is in line with analysts' expectations that the cash rate would remain on hold for a further month

A decision was taken by the RBA board to raise the cash rate by a quarter-point in March this year from seven per cent.

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