RBA shock by leaving rate at 3.75%
2 February 2010
Australia's central bank shocked markets by skipping an interest rate rise on Tuesday, citing the impact of higher mortgage rates at home while noting tighter policy in China and concerns over sovereign debt abroad. The Reserve Bank of Australia's (RBA) decision to keep its key cash rate at 3.75 percent confounded expectations of a rise to 4.0 percent and hammered the local currency as investors slashed estimates for how high rates might go this year. Yet, RBA Governor Glenn Stevens also emphasised that, should the domestic economy continue to improve as expected, then further hikes would likely be needed over time. Investors now doubted if the RBA would move in March either, with futures pricing in around 35 percent chance of a rise. Expectations for the next 12 months were pared back to show around 80 basis points of tightening, compared to 105 basis points before Tuesday's announcement.