Australia's central bank left its benchmark cash rate unchanged at a record low 1.5% at a policy meeting Tuesday, balancing optimism around employment growth over caution around flat wages growth and a higher local currency.
The outcome of the policy meeting was widely anticipated by financial markets, with the Australian dollar, which has been hovering around 80 U.S. cents since mid-July, down only slightly following the announcement.
Continue Reading Below
The on-hold decision marks the 13th-straight month that the Reserve Bank of Australia has kept interest rates steady, while signaling it remains confident the economy will slowly gather momentum over the next year.
"The higher exchange rate is expected to contribute to the subdued price pressures in the economy," said Gov. Philip Lowe in an accompanying statement. "An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast," he added.
Record-low wages growth is also casting doubt on the RBA's forecast that inflation will rise back into the desired 2% to 3% target band. If consumer spending is choked off amid low wages growth and rising housing and utility costs, the economy is also likely to slow, economists warn.
Mr. Lowe gave financial markets pretty clear guidance in mid-August of the bank's current position, saying assumptions in markets of an ongoing policy pause were about right. Policymakers worry that cutting interest rates might add fuel to already hot house prices and fan growth in debt levels.
Higher interest rates could also drive up the Australian dollar through 80 U.S. cents.
-Write to James Glynn at email@example.com
(END) Dow Jones Newswires
September 05, 2017 01:02 ET (05:02 GMT)