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RBA Keeps Interest Rate Unchanged At Historic Low

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The Reserve Bank of Australia on Tuesday decided to keep its benchmark interest rate on hold at a record low for the 26th consecutive meeting.

The board of the Reserve Bank of Australia, governed by Philip Lowe, voted to maintain the cash rate at 1.50 percent. The interest rate has been at the current level since August 2016.

"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 in a statement.

Policymakers observed that the low level of interest rates is continuing to support the Australian economy.

Although policymakers expect further progress in the reduction of unemployment and inflation returning to target, this progress is likely to be gradual, the bank noted.

The Australian economy was performing well with the GDP growing by 3.4 percent and the unemployment rate declining to five percent over the past year, the RBA said.

The bank revised up its economic growth forecasts for 2018 and 2019. Economic growth is expected to be around 3.5 percent over these two years, before slowing in 2020 due to slower growth in exports of resources.

The upward revision to the RBA's growth and inflation forecasts suggest that the Bank is moving closer to tightening policy, Marcel Thieliant, an economist at Capital Economics, said.

The central bank may be seeking clearer evidence that the tighter labor market is generating stronger wage growth before hiking interest rates, the economist said.

Thieliant suggested the full impact of tighter lending standards on house prices and consumption have yet to be felt.

The economist expect the downturn in the housing market to lead to a renewed slowdown in activity next year, and hence the first rate hike is likely to come by the end of 2020.

Regarding property market, the RBA said conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low.

The outlook for household consumption continued to be a source of uncertainty for the economy, the bank cautioned. Growth in household income remains low, debt levels are high and some asset prices have declined.

Growth in credit extended to owner-occupiers remained robust, but demand by investors has slowed noticeably amid changing dynamics of the housing market, it added.

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