What were the main reasons behind the Reserve Bank's (RBA) rate decision today?

In their assessment the global outlook has slightly improved over recent months. The RBA is concerned about domestic sources of inflation and as the positive impact of the higher exchange rate begins to wane, they emphasised a need to improve productivity to counter domestic sources of inflation.

Also the previous adjustments to monetary policy are still working their way through the system, and these appear to have begun to have an impact on domestic activity.

What is ING Direct's prediction for further rate cuts/rises over the next year?

In the absence of adverse market developments, we anticipate the RBA will be on hold for a period into 2013.

What effect will this have on the Australian dollar? Do you think it will remain high for some time?

The immediate response has been for the AUD to trade higher around US$1.04. The unchanged rate environment, and an improving global outlook, will underpin the currency in the near term.

What is your outlook for the economy?

Broadly the economy is expected to be steady, although month to month unemployment may be slightly higher, more so as a result of variation in the participation rate as opposed to a deterioration in labour market conditions.

Domestic sources of inflation are a potential concern, as these have been running at above four per cent. If the exchange rate effect is reduced in keeping measured inflation within the RBA target band, the Bank may, subject to broader domestic and global conditions, be forced to take pre-emptive action.

As the global environment improves, consumer sentiment should also improve, given the battering it suffered over the middle part of the year.

Despite the RBA seeing the resources boom levelling out slightly earlier than expected, the volume effects will continue on into the future.

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