Australian central bank keeps cash rate unchanged at 2% as domestic inflation remains 'contained'

The Reserve Bank of Australia kept its cash rate unchanged at a record low 2 percent for a fourth month, reiterating that domestic inflation pressures remain "contained" and the Australian dollar is adjusting to weaker commodity prices.

Governor Glenn Stevens kept much of the previous month's language in his latest monetary policy decision statement.

"In Australia, most of the available information suggests that moderate expansion in the economy continues," Stevens said. "While growth has been somewhat below longer-term averages for some time, it has been accompanied with somewhat stronger growth of employment and a steady rate of unemployment over the past year."

He said the economy is likely to be operating "with a degree of spare capacity for some time yet, with domestic inflationary pressures contained." Inflation is expected to stay consistent with the RBA's target over the next one to two years, even with a lower exchange rate, he said.

The Australian dollar was little changed after the statement at about 71.35 US cents, near the lowest level in more than six years. The kiwi dollar slipped to 89.30 Australian cents from 89.37 cents. The odds of a cut by the RBA today were put at just 22 percent, based on the overnight interest swap curve, with about 22 basis points of cuts projected for the next 12 months. By contrast, traders see a 78 percent chance that the Reserve Bank of New Zealand will cut interest rates in its monetary policy statement on Sept. 10.

The RBA's Stevens reiterated that monetary policy "needs to be accommodative".

"Low interest rates are acting to support borrowing and spending," he said. "Credit is recording moderate growth overall, with growth in lending to the housing market broadly steady over recent months. Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities."

Among the few changes from the statement on Aug. 4, Stevens noted that equity markets "have been considerably more volatile of late, associated with developments in China" although other financial markets have been relatively stable.

(BusinessDesk)