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Surprising the majority of economists yesterday, and against a 6 year “tradition” of lowering interest rates on Melbourne Cup Day, the Reserve Bank yesterday kept the official cash rate on hold at 3.25%.

In his statement explaining the decision, Mr Stevens was more positive about the outlook for the US and Chinese economies, although he remained concerned about Europe.

HSBC Australia chief economist Paul Bloxham says concerns about inflation creeping higher seem to be the key reason the Reserve decided to leave rates on hold.

“Given the waning effect of the exchange rate on pushing down tradeable prices and that inflation appears to have passed its trough, we could be nearing the end of this rate cutting cycle,” he wrote in a note on the data.

“For now, we have in mind one more cut, but only just.”

Westpac chief economist Bill Evans believes a December rate cut is in order.

He says despite all the optimism, the mining boom is still ending sooner than hoped and the RBA has to ensure other sectors are able fill the void.

“We need to start focusing on giving a true lift to the other parts of the economy and delaying on interest rate cuts isn’t the way to do that,” he said.

The Australian dollar jumped after the decision as currency traders cut their bets on further rate reductions – it rose from just under 103.7 US cents to around 104.3

Troy Phillips

Author Troy Phillips

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