THE Reserve Bank of Australia has left interest rates on hold at its first meeting of the year, despite expectations of a third consecutive rate cut.Home owners and borrowers have at least one more month of relief after the RBA decided to keep the cash rate unchanged at 4.25 per cent.

In a statement released this afternoon, Reserve Bank governor Glenn Stevens said the acute financial pressures on banks in Europe were alleviated considerably late in 2011 by the actions of policymakers.

‘‘Much remains to be done to put European sovereigns and banks on a sound footing, but some progress has been made,’’ Mr Stevens said.

‘‘Financial market sentiment, though remaining skittish, has generally improved since early December. Share markets have risen and term funding markets have re-opened, including for Australian banks, albeit at increased cost compared with the situation prevailing in mid 2011.’’

Mr Stevens added that the Australian economy continues to suggest growth close to trends with inflation at the end of 2011 at 2.5 per cent. This is in the middle of the bank’s target range of 2 to 3 per cent.

‘‘Housing prices showed some sign of stabilising at the end of 2011, after having declined for most of the year,’’ he said.

‘‘The exchange rate has risen further, even though the terms of trade have started to decline. This is largely a reflection of a decline in the euro against all currencies. Nonetheless, the Australian dollar in trade-weighted terms is somewhat higher than the Bank had previously assumed.’’

The RBA noted at the meeting that interest rates for borrowers had declined to be close to their medium-term average as a result of the RBA’s two previous meetings when the cash rate was cut by 25 basis points each time.

St George and Sutherland Shire Leader