Policymakers of the Reserve Bank of Australia kept its key interest rate at a record low after lowering it by a quarter point last month, as they observed that the current stance is appropriate.
The policy board governed by Glenn Stevens decided on Tuesday to leave the cash rate at 2.00 percent as widely expected by economists. The bank lowered the rates by 25 basis points each in February and May.
"Having eased monetary policy last month, the Board today judged that leaving the cash rate unchanged was appropriate at this meeting," the bank said in a statement.
Paul Dales, chief Australia & NZ economist at Capital Economics said today's hold is nothing more than a pause in the loosening cycle that could yet result in rates falling to 1.5 percent by the end of the year.
Policymakers observed that the Australian dollar declined noticeably against a rising US dollar over the last year, though less so against a basket of currencies.
Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices, the bank said.
Information about developments in economic and financial situation over the period ahead would inform policymakers' assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.
Dales said it is only a matter of time before the central bank will have to conclude that economic growth will be weaker than the 2.25 percent it expects for this year and the range of 2.5 percent to 3 percent it is forecasting for 2016.
If growth moves to near 2 percent in both years, then the RBA will have little choice but to cut rates further, he said.
The bank said the Australia economy is set to operate with a degree of spare capacity for some time yet. With slower labor cost growth, inflation is expected to remain consistent with the target over the next one to two years, even with a lower exchange rate.
In such circumstances, monetary policy needs to be accommodative. The bank noted that low interest rates are acting to support borrowing and spending.
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