Rates on hold as high dollar saps growth

The Reserve Bank has left the cash rate on hold at its final meeting of the year as it continued to stress that the Australian dollar was "still uncomfortably high".

The Reserve Bank has left the cash rate on hold at its final meeting of the year as it continued to stress that the Australian dollar was "still uncomfortably high".

In an almost identical statement to the previous month, RBA governor Glenn Stevens said the current monetary policy settings were appropriate.

"The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target," he said.

The local currency slipped a quarter of a cent on the comments. It fell to US90.57¢, near its November low, and was buying US90.71¢ late on Tuesday.

Mr Stevens' statement contained only minor changes, such as the changing of the words "still too soon to judge" about the impact of improved consumer and business sentiment to "still unclear".

The similar message showed the central bank did not want to rock the boat before its summer break, JPMorgan economist Tom Kennedy said. The board's next meeting is in February.

"There's an easing bias ... and given where we are in the cycle, we think that lends itself to a lower cash rate rather than raising the cash rate. But in saying that, it's going to be very heavily data dependent in terms of the timing," he said.

Analysts said the RBA would be keeping a close watch on the movements in the Australian dollar, capital expenditure levels, housing and labour market figures, and possible moves by the US Federal Reserve to reduce its bond-buying program. The local currency declined by 3.7 per cent in November, in part due to sustained calls for a weaker dollar by the central bank.

The RBA's move, which was tipped by economists and financial markets, came as better than expected retail sales figures for October boosted expectations that previous rate cuts were supporting growth in non-mining industries.

Retail sales rose a seasonally adjusted 0.5 per cent in October, slightly above economists' expectations of a 0.4 per cent rise, as Australians increased their spending on food, clothing and at restaurants, official data released on Tuesday showed. September sales figures were adjusted upwards to reflect a 0.9 per cent increase.

"Over the past three months, there's a clear improvement in the trend," Deutsche Bank economist Phil O'Donaghoe said.

"Retail trade over the past three months is up 0.6 per cent. If you look at the three months before that, it's only up 0.1 per cent."

Balance of payments figures for the third quarter were also seen as broadly positive, with export volumes growing by 0.1 per cent as import volumes fell by 2.4 per cent. Net exports were expected to add 0.7 percentage points to third-quarter GDP.

"There are clear signs that one part of the required growth transition is under way ... The stronger net exports position is, in our view, likely to continue through 2014 and 2015," Commonwealth Bank senior economist Michael Workman said.

The current account deficit for the three months to September widened to $12.7 billion from $12.1 billion in the previous quarter. The terms of trade decreased by 3.3 per cent for the quarter, and was 3.5 per cent lower than a year ago.

The latest figures also showed that offshore investors continued to have a strong interest in Australian government bonds, drawn to the lower exchange rate and relatively high yields, analysts said.

Non-residents bought $15.3 billion in Commonwealth securities in the third quarter, the largest net increase in such purchases since March 2012.

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