**Australia’s central bank has surprised the markets by keeping interest rates on hold at 3.75%.**Most analysts had been expecting rates to rise to 4%, and news of the rate freeze sent the value of the Australian dollar falling.
Australia has largely escaped the worst effects of the banking crisis, and the Reserve Bank of Australia has raised rates three times since October.
However, the central bank hinted that more rate rises may be needed.
“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,” said Reserve Bank of Australia (RBA) governor Glenn Stevens.
On the foreign exchanges, the Australian dollar fell by 1 US cent to $0.88, however the main All Ordinaries share index rose by 1.8%.
Australia’s Treasurer Wayne Swan welcomed the pause in the rate rises. “Families will welcome this decision and businesses will welcome this decision,” he said.
Robust economy
The RBA said it wanted to judge the impact of its past three moves before lifting interest rates further.
Its lack of action was the more surprising given the accompanying statement. It described a robust and growing economy. The RBA said conditions had proved stronger than expected and unemployment had peaked at a much lower level than had been feared.
National Australia Bank’s head of research, Peter Jolly, said more rate rises were in the pipeline: “This is a pause, not a stop. It’s just that they paused earlier than most thought.”
Mr Jolly added that he still expected to see rates one full percentage point higher at 4.75% by the end of the year.