AAP

Interest rates on hold at 3.75%

THE central bank has left the official interest rate unchanged, defying financial market expectations of a 25 basis point hike.

The Reserve Bank of Australia (RBA) left the cash rate unchanged at 3.75 per cent.

The decision, made at its board meeting on Tuesday, was not widely expected.

With the risk of serious economic contraction in Australia having passed, RBA governor Glenn Stevens said the Board had moved at recent meetings to lessen the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker.

"Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point," he said.

"Since information about the early impact of those changes is still limited, the Board judged it appropriate to hold a steady setting of monetary policy for the time being.

"Interest rates to most borrowers nonetheless remain lower than average.

"If economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term."

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PM cautions banks on rate rise

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