THE Reserve Bank has kept interest rates unchanged at 4.5% but despite further deterioration in global markets, economists said the RBA remains committed to its tightening policy.

ANZ Bank economist Katie Dean said the RBA has continued to maintain a neutral tone, unchanged from last month.

“While the Bank is maintaining a neutral stance, the risks to its outlook appear to have tilted a little further to the downside.

“The RBA is now clearly more concerned about global economic prospects.�The Bank is ‘uncertain’ over the outlook for the European economy and highlights that parts of the US recovery are ‘slow’.

“The Bank notes, for the first time, that offshore funding markets are tightening, but highlights that this is not on the scale seen in late 2008. The RBA also highlights that we are seeing the first signs that growth in China is slowing, but sees this as a slowdown to a sustainable pace,” she added.

But Dean said despite the uncertainty in global economic conditions, the RBA’s outlook for the Australian economy remains robust.

“In an unusually detailed Statement, the Bank has maintained its view that Australian economic growth will be around trend over the next year. Importantly, the RBA does not appear to be seeing any fresh tightening of financial conditions locally, but does note instead that credit conditions for some sectors remain difficult.

“In this environment, a temporary breach of its 3% inflation target is less of a concern,” she said.

Dean believes there is a greater risk that rates will go up rather than down but she added the timing of the next move continues to drift further away.

“We continue to expect the Bank will stay on hold until at least Q4, and admit that the risks are for a more extended period on the sidelines if the global environment deteriorates further,” she concluded.

PropertyReview.com.au