Australian interest rates are "well placed for the present" according to the RBA, after it tightened policy earlier this month to offset inflationary pressures from a resources boom, according to central bank minutes from its May 4 Policy Meeting. It reiterated that if lenders responded to the rise in interest rates as expected "interest rates faced by most borrowers would then be at around their average levels over the past decade".
It also said there were early signs that the rises were starting to slow the economy "with retail sales subdued and housing loan approvals falling noticeably". But the RBA said it expects the stimulatory effects of the commodity price upswing "would be building over the year ahead." "Members were conscious of the need for this not to result in a material worsening in the medium-term outlook for inflation," it said.
The evolving sovereign debt crisis in Greece formed an argument to hold rates steady in May, it said. It said there was a risk that the situation could worsen further, damaging the global economic recovery. The RBA expects both core and headline inflation to drift toward the top end of its 2%-to-3% target band in the near term and remain there over a longer horizon.