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Sydney - Australia paused an aggressive series of interest rate rises on Tuesday, citing turmoil on global markets over Europe's debt crisis which has raised the spectre of a "double dip" recession.
The Reserve Bank of Australia opted to leave rates on hold at 4.50%, deciding against a fourth straight quarter-point hike and the seventh since October.
"Interest rates to borrowers are around their average levels of the past decade, which is a significant adjustment from the very expansionary settings reached a year ago," said Reserve Bank of Australia governor Glenn Stevens.
"Taking all the available information into account, the board views this setting of monetary policy as appropriate for the near term," he added.
Australia's stock market and national currency have fallen sharply over the past month as investors were rattled by debt problems in Greece, Spain and elsewhere which have prompted emergency action by European leaders.
The economy has also been overshadowed by a row over a new tax on the key resources sector, which has helped drive Australia's strong recovery from the financial crisis.
The rates decision followed mixed data on Tuesday, with April retail sales up a better-than-expected 0.6% from a month earlier but housing building approvals down 14.8%.
Treasurer Wayne Swan said the decision would be welcomed by mortgage-holders and businesses who have come under pressure after rates shot up from 49-year lows of 3.0% last September.
Australian dollar down sharply
"This news will be welcome relief for many Australian families and businesses around the country who are of course doing it tough," he said.
Stevens said markets had been preoccupied by Europe's problems, which are blamed for losses of AU$110bn at the Sydney bourse and a 10 US cents drop in the local currency last month.
"Equity prices have fallen and long-term government bond rates have declined outside of the countries most affected by the sovereign concerns," he said.
"The Australian dollar fell sharply as part of this adjustment. Commodity prices have also softened, though those important for Australia remain at very high levels."
Analysts interpreted Stevens' statement as a warning to markets that rates would not stay on hold for long.
"They are saying policy is appropriate ... but they are clearly saying for the 'near term'," said Stephen Walters, chief economist at JPMorgan.
"In other words, don't get too comfortable that they are on hold for a very long period of time here."
The Australian dollar rose after the announcement from 83.63 US cents to 83.91, while the benchmark S&P/ASX200 index was 0.54% lower in late trade.
- AFP
