Australia's central bank decided to leave its key interest rate unchanged at a record low for the eleventh consecutive meeting on Tuesday, and cautioned that rising currency is likely to weaken inflation and weigh on economic activity.
The board of the Reserve Bank of Australia, governed by Philip Lowe, maintained the cash rate at 1.50 percent. The bank had reduced the rate by 25-basis points each in August and May last year.
"Taking account of the available information, 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.
An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast, the bank said.
The higher exchange rate is likely to contribute to subdued price pressures in the economy. The bank observed that it is also weighing on the outlook for output and employment.
The subdued GDP growth will prevent the RBA from raising interest rates until late in 2019, Paul Dales, an economist at Capital Economics, said. That would be roughly a year later than the financial markets currently expect.
The economy is forecast to grow at an annual pace of around 3 percent over the next couple of years. According to RBA, one source of uncertainty for domestic economy is the outlook for consumption.
The bank noted that forward-looking indicators point to continued growth in employment over the period ahead.
The unemployment rate is expected to decline a little over the next couple of years. However, wage growth remains low and this is likely to continue for a while yet, the bank added.
Inflation is forecast to pick up gradually as the economy strengthens. CPI inflation and measures of underlying inflation are running at a little under 2 percent.
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