SYDNEY, July 4: Australia's trade deficit fell 12 per cent to $807 million in May after a sharp rise in exports, official figures showed on Wednesday.

The Australian Bureau of Statistics (ABS) said exports rose three per cent to a seasonally-adjusted $18.7 billion in May, while imports were up two per cent at $19.5 billion.

Economists had forecasts a $1.2 billion deficit.

The rise in exports was largely the result of a four per cent rise in non-rural goods shipments.

Meanwhile, Australia's central bank left interest rates unchanged at a six-year high of 6.25 per cent on Wednesday despite long-held jitters over inflationary pressure.

The decision by the board of the Reserve Bank of Australia was in line with market expectations after data released on Tuesday showing weaker-than-expected retail trade and building approvals.

The decision indicates that the bank feels it still has time to act by increasing rates if it feels that inflationary pressure reaches a critical level, analysts said.

The bank's decision to leave interest rates on hold followed three rate hikes last year, the last one in November, aimed at dampening inflation.

The bank in May cut its inflation forecast. It said then that it expected underlying inflation to fall back to about 2.5 per cent within the year, down from 2.75 per cent over the year to March 2007.

The bank has an overall inflation target of 2.0-3.0 per cent.—AFP