Australia's central bank maintained its interest rate at a record low for the eighth consecutive meeting as policymakers remained optimistic about the growth outlook amid rising inflation.
The board of the Reserve Bank of Australia, led by Philip Lowe, kept the cash rate unchanged at 1.50 percent. The bank had reduced the rate by 25-basis points each in August and May last year.
"The board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time," the bank said in a statement.
According to the RBA, economic growth will increase gradually over the next couple of years to a little above 3 percent.
The improvement in the global economy contributed to higher commodity prices, which are providing a significant boost of Australia's national income, the RBA observed.
The bank pointed out that various forward-looking indicators suggest continued growth in employment over the period ahead. The unemployment rate is forecast to decline gradually over time. The bank said wage growth remains slow and it is likely to remain the case for a while yet.
Further, policymakers observed that the depreciation of the exchange rate since 2013 has assisted the economy in its transition following the mining investment boom. However, an appreciating exchange rate would complicate this adjustment, the bank said.
The bank observed that inflation picked up to above 2 percent in the March quarter. In underlying terms, inflation is running at around 1.75 percent, a little higher than last year. The bank expects a gradual increase further in underlying inflation as the economy strengthens.
Capital Economics economist Paul Dales said it looks as though interest rates will remain on hold at 1.5 percent for the rest of this year as financial stability concerns continue to force the RBA to put up with underlying inflation remaining below the 2-3 percent target range and an unemployment rate of close to 6 percent.
Regarding the property market, the bank said house prices have been rising briskly in some markets and declining in others.
Growth in housing debt has outpaced the slow growth in household incomes. The recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness, the bank said.
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