Australia’s central bank holds rates steady

Reuters The Reserve Bank of Australia building in central Sydney.

SYDNEY(MarketWatch) � The Reserve Bank of Australia left its policy cash rate unchanged Tuesday, in line with expectations, but adopted a more dovish tone that could see a cut delivered next month.

The Reserve Bank left the official cash rate unchanged at 4.25% for the third consecutive month.

The Australian dollar AUDUSD �rose briefly rose after the decision to $1.047, but soon pulled back to trade at $1.0399, compared to $1.0435 prior to the statement.

�The board judged the pace of output growth to be somewhat lower than earlier estimated but also thought it prudent to see forthcoming key data on prices to reassess its outlook for inflation before considering a further step to ease monetary policy,� RBA Gov. Glenn Stevens said in a statement accompanying the decision.

�Recent information is consistent with the expectation that the world economy will grow at a below-trend pace this year but does not suggest that a deep downturn is occurring,� Stevens said.

But the central bank chief also left the door open for a rate cut, saying that, �were demand conditions to weaken materially, the inflation outlook would provide scope for easier monetary policy.�

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UBS senior economist George Tharenou said the statement was more dovish than seen in recent months, �with a shift that means the RBA will �consider� a May rate cut if the inflation data [due April 24] is low enough.�

�This contrasts with previous comments, which suggested that both a trend of rising unemployment and a low-enough inflation print were required,� Tharenou said.

According to Credit Suisse calculations, market pricing ahead of the RBA announcement suggested 74 basis points� worth of rate cuts by March 2013, while a Bloomberg survey of economists tipped a cut sometime in the second quarter.

The RBA cut its key rate twice in quick succession at the end of last year in order to combat concerns about the potential fallout from Europe�s debt troubles to global growth, but has been on hold since then.