Australian central bank keeps benchmark interest rate unchanged

Australia's central bank retained its benchmark interest rate at a developed-world high as with the global economy stabilising and domestic inflation picking up, driving the local currency to a five-week high.

The Reserve Bank of Australia said in a statement today in Sydney that governor Glenn Stevens and his board left the overnight cash-rate target at 3.25 per cent. The move came as a surprise to most economists.

''With prices data slightly higher than expected and recent information on the world economy slightly more positive, the board judged that the stance of monetary policy was appropriate for the time being,'' Stevens said in the statement.

According to analysts, his decision to hold reflected Australia's standing as one of the few industrial economies that needed to remain alert to inflation risks. The trade-driven economy of the country is reliant on Chinese resource demand for growth and its currency remained above parity with the US dollar even as America's expansion accelerated.

The Australian currency surged to $1.0438 following the decision, the highest level since 28 September.
 
A quarter of Australia's exports, or around 5 per cent of gross domestic product, goes to China, with 60 per cent of those shipments being iron ore. According to data revealed this month, China's non- manufacturing industries picked up from the slowest expansion in at least 19 months, pointing to world's second-biggest economy recovering from a seven-quarter slowdown.

The Australian government has pressed the central bank to loosen monetary policy as it bids for a $44 billion swing in the budget back to the black in time for an election late next year. Rates were cut by 1.5 percentage points since October by policy makers in five separate moves.