Australian Reserve Bank holds interest at 2.5%

Australians with mortgages can breathe a bit easier after the Reserve Bank of Australia yesterday held its cash rate at 2.5% while noting inflation remains consistent with its target of between 2% and 3%.

In New Zealand, the Reserve Bank is expected to lift its official cash rate to 3.25% on June 12, adding pressure to those with mortgages.

Exporters could again suffer, as the dollar is likely to rise in value as overseas investors seek higher returns by investing in New Zealand's financial markets.

New Zealand's inflation is 1.5%, still below the mid-point of the 1% to 3% target range.

The European Central Bank seems set to produce negative interest rates on Thursday night, meaning depositors will get zero percent for any money they have in the bank.

RBA governor Glenn Stevens said Australian monetary policy remained accommodative. Interest rates were ''very low'' and for some borrowers had edged lower over recent months.

Savers continued to look for higher returns in response to low rates on safe instruments. Credit growth had increased slightly, he said.

''Dwelling prices have increased significantly over the past year though there have been some signs of a moderation in the pace ... recently.''

The earlier fall in the exchange rate was assisting in achieving balanced growth in the economy but less so than previously as a result of the higher levels over the past few months.

The exchange rate remained high by historical standards, particularly given the further decline in commodity prices, Mr Stevens said.

''On present indications, the most prudent course is likely to be a period of stability in interest rates.''


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