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Reserve Bank leaves interest rates on hold at 2pc despite global market volatility

The Reserve Bank has left interest rates on hold at their historic low of 2 per cent for the fourth consecutive month.

The lack of action was widely expected, with markets pricing in less than a 10 per cent chance of a change and a recent Bloomberg survey of 27 economists forecast no change.

The RBA cut rates to their historic low in May.

The central bank has not been swayed by recent global market volatility, holding to its stance of further monitoring the Australian economy before deciding its next move.

“Equity markets have been considerably more volatile of late, associated with developments in China, though other financial markets have been relatively stable,” RBA governor Glenn Stevens said in a prepared statement.

Mr Stevens said the economy should continue its modest expansion.

“While growth has been somewhat below longer-term averages for some time, it has been accompanied with somewhat stronger growth of employment and a steady rate of unemployment over the past year,” he said.

The RBA appears to be becoming more sanguine about exchange rates, noting: “The Australian dollar is adjusting to the significant declines in key commodity prices.”

RBC chief economist Su-Lin Ong said there was “nothing in today’s statement that hinted of any shift closer towards further easing, although markets are fully priced for another 25-basis-point cut before year end”.

“As we suspected, however, the RBA largely stated the facts and offered little opinion or assessment of risk especially with regards to China,” she said.

“While the RBA may be camped on the sidelines with a reluctant [easing] bias we are less sure how comfortable they are behind closed doors.

“A step up in policy action from China recently underscores the underwhelming state of the economy, the commodity complex remains under pressure, and the latest capital expenditure [capex] survey showed few convincing signs of a sustained pick up in non-mining investment while resource capex plans have weakened further.”

The Australian dollar remained largely unmoved, trading a 0.7127 cents against the US dollar at 3:45 pm (AEDT).

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