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Australia’s central bank kept its benchmark interest rate unchanged as growth prospects in the U.S. improve and China’s outlook stays “quite robust,” while Europe remains a risk. The local currency fell.

Governor Glenn Stevens and his board left the overnight cash-rate target at 4.25 percent, the Reserve Bank of Australia said in a statement in Sydney today, using a phrase he employed last month by calling policy “appropriate for the moment.” He repeated there’s scope to cut rates if demand weakens.

Stevens’s second straight pause after two reductions late last year reflects confidence U.S. companies will keep hiring, Europe’s recession will remain mild and domestic employment will be supported by A$456 billion ($484 billion) of resource projects. He maintained a view that inflation will stay within the central bank’s 2 percent to 3 percent target range, even as the consumer-price index may weaken in the next quarter or two.

Recent information indicates “the world economy will grow at a below-trend pace this year, but does not suggest that a deep downturn is occurring,” Stevens said. “Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy.”

The RBA’s decision to maintain the highest benchmark borrowing costs among major developed economies was forecast by all 25 economists surveyed by Bloomberg News.

Currency Falls
The currency fell 0.5 percent to $1.0614 at 2:39 p.m. in Sydney from $1.0671 yesterday. It bought $1.0647 before the decision. The three-year bond yield fell to 3.64 percent from 3.71 percent yesterday and the 10-year yield declined to 3.98 percent from 4.04 percent yesterday.

The Australian dollar, the world’s fifth-most traded currency, has strengthened about 4 percent this year as investors bet the nation’s economy will accelerate. It touched a six-month high of $1.0856 on Feb. 29 after the European Central Bank awarded 529.5 billion euros ($699 billion) in a second round of three-year loans to banks.

“The acute financial pressures on banks in Europe have been alleviated considerably by the actions of policy makers, though there is more to do to put European banks and sovereigns onto a sound footing for the longer term and Europe will remain a potential source of shocks for some time yet,” Stevens said today.

China is Australia’s biggest trading partner, and the RBA has said it expects Chinese demand for commodities to spur the domestic economy.

Manufacturing Woes
Manufacturing in China expanded for a third straight month, a purchasing managers index released last week showed. Still, China yesterday pared the nation’s economic growth target to 7.5 percent from an 8 percent goal in place since 2005.

“Growth in China has moderated as was intended, but on most indicators remains quite robust overall,” Stevens said today.

In the U.S., recent reports have highlighted an expansion that’s broadening, with data yesterday showing service industries unexpectedly expanded last month at the fastest pace in a year. Initial claims for jobless benefits fell in late February to the lowest level since March 2008, a sign the labor market in the world’s biggest economy is healing.

“Several European countries will record very weak outcomes, but the U.S. economy is continuing a moderate expansion,” Stevens said today.

Mining Bonanza
Australia has grown more dependent on resources as employment in manufacturing dropped by about 30 percent since 2007, while mining and government rose by more than 50 percent, HSBC Holdings Plc (HSBA) estimates.

Auto exports plunged to the lowest since 1998 last year, leading to job cuts at General Motors Co. (GM) and Toyota Motor Corp. (7203)’s local units. Sydney-based David Jones Ltd. (DJS), the nation’s second-largest department store chain, said Feb. 23 that second- quarter sales fell 3.1 percent as spending stalled and the strong currency made it cheaper for shoppers to buy from overseas websites.

The RBA “expects inflation to be in the 2 percent to 3 percent range,” Stevens said. “Credit growth remains modest. Housing prices have shown some sign of stabilising recently, after having declined for most of 2011, but generally the housing market remains soft.”

After last month’s rate pause, the country’s four biggest lenders -- Commonwealth Bank of Australia, National Australia Bank Ltd. (NAB), Westpac Banking Corp. (WBC) and Australia & New Zealand Banking Group Ltd. (ANZ) -- raised mortgage rates, citing higher wholesale funding costs.