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Australia Central Bank Keeps Cash Rate Unchanged At Record Low

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The Reserve Bank of Australia on Tuesday decided to keep its benchmark cash rate unchanged at a record low of 2.5 percent for a fourth consecutive time while reiterating policymakers' concern that the Australian dollar still remained "uncomfortably high".

"The Australian dollar, while below its level earlier in the year, is still uncomfortably high," Governor Glenn Stevens said in a statement. He also noted that a lower level of the exchange rate is needed to achieve balanced growth in the economy.

Maintaining their tentative easing bias, policymakers at the Reserve Bank Board noted that the board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target.

"As before, this indicates that the timing of the next rate move will be highly data dependent," said Stephen Walters, an economist at J.P Morgan Australia. A comparison between the November and December commentaries reveals that the Board has only adjusted a hand full of words, Walters pointed out.

"It seems RBA officials are content to stay on the policy sidelines for a while longer as they await further information on the economy over the long summer break," the economist added.

The RBA has reduced the cash rate by a cumulative 225 basis points since November 2011 on the premise that accommodative policy is needed to support demand in areas outside the resources sector, as the peak in mining investment approaches.

At the meeting, the Board judged the current setting of the monetary policy as "appropriate". Stevens noted that the easing in monetary policy since late 2011 has supported interest-sensitive spending and asset values.

"The full effects of these decisions are still coming through, and will be for a while yet," he said.

Referring to the current economic conditions, Stevens said growth has been a bit below trend over the past year. "This is likely to persist in the near term, as the economy adjusts to lower levels of mining investment," the central bank chief added.

The board expects private demand outside the mining sector to increase at a faster pace, though it sees considerable uncertainty surrounding this outlook.

There has been an improvement in indicators of household and business sentiment recently, but the central bank said it is still unclear how persistent this will be. The bank also expects public spending to be quite weak going forward.

However, Stevens maintained RBA's assessment on inflation, saying that recent data on prices showed that inflation remained consistent with the medium-term target and that this is likely to be the case over the next one to two years.

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