What are the reasons behind today's rate decision?

The RBA kept the cash rate unchanged today. The Bank cited the ongoing flow through effects of previous rate cuts together with the ongoing improvement in the global outlook as the major drivers behind keeping the rates unchanged.

Would the federal election have had any impact on their decision?

No the RBA has shown over an extended period of time that it is immune from the political process and will adjust rates on the basis of what is correct for the economy.

What is the RBA's reading on the Australian economy?

The Bank clearly sees that activity in the housing sector has responded to the cuts in interest rates, however, the Bank would be potentially concerned that the increased level of activity is leading to price inflation on existing dwelling as opposed to construction of new dwellings.

The Bank would be encouraged that investment spending is declining at a measured pace as opposed to doom and gloom as predicted in some quarters.

And the global economy?

According to the RBA the global economy continues to improve, with just about all regions showing positive signs of a solid recovery in the global picture

Would talk of tapering QE3 have any impact on the RBA's view of the US?

I think the recovery in the US economy is sufficiently broad based that any moves by the US Fed to progressively tone down the stimulus appears likely to be absorbed without dislocating the recovery process.

What effect have previous rate cuts had on the Australian economy? Do you think the RBA is concerned or happy with the effect cuts have had?

The previous rate cuts continue to work through the economy, however, the Bank would be concerned as to the perceived overheating of the housing market and the extent to which investors are crowding out other participants in the market. Auction clearance rates continue to be at very elevated levels.

The challenge for the RBA is to ensure that the improvement in the housing market generates new building activity as opposed to turnover and higher prices in existing dwellings.

Importantly the exchange rate has weakened by about 15% over the past 6 months and this is helping wider sectors of the economy.

How did the decision impact the Australian dollar?

The AUD increased slightly in value by about 50 points to currently be around .9050. The market appears to be questioning if there are further rate cuts to be seen over the remainder of 2013. If the view firms that rates will be on hold for an extended period it is reasonable to suggest that the AUD may drift slightly higher.

What is ING Direct's outlook for rates, the exchange rate and the Australian economy?

Broadly the economy is holding together better than the market had anticipated a few months ago. The global picture is brighter and the impact of the lower exchange rate is starting to gradually work through the economy with more to follow.

The RBA would be concerned about the slow growth in business credit and what is required to get this moving. Once the election is out of the way and hopefully, a majority government is established, business confidence may improve and this be translated into higher credit demand at the lower rates.

The market will increasingly question the need for further rate cuts and it will be a close call if rates are adjusted over the balance of 2013.