The members of the Reserve Bank of Australia's monetary policy board said that the uncertainty emanating from Europe suggests that the global economy will remain fragile in the near term, minutes from the bank's August 7 meeting revealed on Tuesday.
The bank further noted that the global outlook has become more subdued than a few months ago, although growth in Australia remains close to trend.
"The forecast for global growth in 2012 was close to its long-term average and growth was expected to pick up somewhat in 2013," the minutes said. "Nevertheless, the risk of significant economic and financial disruption in the euro area continued to cloud the outlook."
The bank also observed that inflation is expected to remain within targets, giving the board a free hand to keep rates on hold in an effort to boost the economy, the minutes said.
"Inflation was forecast to increase a little as the effects of the earlier exchange rate appreciation continued to wane, and it would also temporarily be pushed higher by the introduction of the carbon price," the minutes said. "Inflation was nonetheless forecast to be around the middle of the target range by late 2013 and to be consistent with the target over the medium term."
At the meeting, the RBA held its benchmark cash rate unchanged at 3.50 percent for a second consecutive rate-setting meeting, saying it is too early to see the full impact of past policy easing.
The decision was in line with forecast. The RBA reduced the cash rate by basis points in May and by a quarter-point in June.
"With inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the board judged that the stance of monetary policy remained appropriate," the minutes said.
Even after a cumulative 125 basis point reduction in cash rate since November last year, Australia has the highest borrowing costs among the developed economies. The economy has proved comparatively more resilient to global economic turbulence supported by its once-in-a-century mining boom.
Australia's gross domestic product jumped a seasonally adjusted 1.3 percent quarter-over-quarter in the first three months of 2012 following a 0.6 percent increase in the previous three months. The Australian Bureau of Statistics is expected to release the second quarter GDP data on September 5.
"Domestically, the economy was forecast to grow around trend pace over the medium term," the minutes said. "Resource investment was projected to continue to increase rapidly over the next year or so, broadly in line with earlier expectations."
Upon the release of the data, the Australian dollar rose against its major counterparts, trading near 1.0462 against the U.S. dollar, 1.1811 against the euro, 1.2920 against the kiwi and 83.09 against the yen.
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