FOR the third consecutive month, the Reserve Bank of Australia has left cash rates unchanged at 4.25 per cent.

Monetary Policy Decision governor, Glenn Stevens, today said: “Recent information is consistent with the expectation that the world economy will grow at a below-trend pace this year, but does not suggest that a deep downturn is occurring.

“Several countries in Europe will record very weak outcomes, but the US economy is continuing a moderate expansion. Growth in China has moderated, as was intended, and is likely to remain at a more measured and sustainable pace in the future.

“Conditions around other parts of Asia softened in 2011, partly due to natural disasters, but are not showing signs of further deterioration. Some moderation in inflation has allowed policymakers in the region to ease monetary policies somewhat.

“Commodity prices declined for a few months last year and are noticeably off their peaks, but have been relatively stable for a while now, at quite high levels. Australia’s terms of trade have peaked, though they remain high.”

He said the financial market sentiment has generally continued to improve in recent weeks and capital markets are supplying funding to corporations and well-rated banks.

“Interest rates for borrowers remain close to their medium-term average,” he said. “Credit growth remains modest. Housing prices have shown some signs of stabilising recently, after having declined for most of 2011, but generally the housing market remains soft. The exchange rate has remained high over recent months, even though the terms of trade have declined somewhat.”

He said it’s expected that inflation will be in the 2 to 3 per cent range over the next one to two years.