The Reserve Bank has keep the cash rate on hold for the second consecutive month, but has kept the door open for further cuts if they are needed to stimulate the economy.
The cash rate remained at 2.75 per cent, a 53-year low, after the last RBA cut in May.
“At today’s meeting the Board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target,” Reserve Bank governor Glenn Stevens said in a short statement.
“It decided that the stance of monetary policy remained appropriate for the time being. The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand.”
The Australian dollar was trading at 92.23 US cents just before the statement was released. It rose slightly before slipping about a quarter of a cent to 91.72 US cents.
Financial markets were pricing in a 14 per cent chance of a 25-basis-points cut today, according to Credit Suisse data.
A majority of economists had expected the central bank to stay its hand, after a sharp fall in the Australian dollar over the past few months helped to ease the pressure on export-oriented sectors of the economy.
Mr Stevens said the Australian dollar still remained at a “high level” despite its recent falls.
Since the last RBA cut in May, the Australian dollar has slipped more than 10 per cent against its US counterpart, with currency strategists not expecting it to return to its above parity levels.
The Reserve Bank said in its June board minutes that further falls in the dollar would help to “foster a rebalancing of growth in the economy” as the mining boom peaks. Mr Stevens repeated the same comments in his statement today.
Analysts said the RBA could to ease rates again later this year amid a slower-than-expected transition towards non-mining-led growth as the resources investment boom peaks.
Data released yesterday suggested that the housing and manufacturing sectors – two key industries economists said needed to grow – were strengthening. But analysts said the sectors needed to expand more to fill the gap left by mining.
Economists said fears about China’s slowing economy and credit crunch were also weighing on Australia’s growth.
The Reserve Bank’s current easing cycle started in November 2011. The cash rate has fallen by 200 points since then.
More to come…
RBA interest rate decisions in current easing cycle
May 7: -0.25, to 2.75 per cent
Dec 5: -0.25, to 3 per centOctober 3: -0.25, to 3.25 per centJune 6: -0.25, to 3.5 per centMay 2: -0.50, to 3.75 per cent
December 7: -0.25, to 4.25 per centNovember 2: -0.25, to 4.5 per cent