As expected, the Reserve Bank has left its official interest cash rate steady on 2.5%, 12 months after cutting it to that record low.
The decision was expected by the market – not one economist forecast a rise.
The move saw the dollar hardly move from around 93.30 US cents.
The year long lack of any movement on rates is the longest single period since 2006.
Most economists don’t expect the RBA to touch interest rates at least until around the middle of next year. (Although Goldman Sachs remains on the record with a rise forecast for September).
The RBA said: "In the Board’s judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates."
The strength of the Australian dollar once again weighed heavily in RBA governor Glenn Stevens’ statement, as he repeated the comment made in the June statement about the dangers the persistently high value of the currency could cause the economy.
"The exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy.
The RBA believes the dollar’s current value is out of step with Australia’s declining terms of trade (as we saw in the June quarter trade account)]. It makes non-commodity exports less competitive, and retards the transition from the resource investment boom to a more broader, domestic driven growth pattern.
A key change in the latest statement from mr Stevens was the recognition of the growing ‘benefit‘ from the weak wage growth.
"There has been some improvement in indicators for the labour market this year, but it will probably be some time yet before unemployment declines consistently. Recent data showed an increase in inflation, with both headline and underlying measures affected by the decline in the exchange rate last year.
"But growth in wages has declined noticeably and is expected to remain relatively modest over the period ahead, which should keep inflation consistent with the target even with lower levels of the exchange rate."
"Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years."
In previous statements this year the RBA said the low rate of growth in wages and other factors could help keep a lid on inflation over the next "one to two years".
Growth in wages has declined noticeably. If these and other domestic costs remain contained, inflation should remain consistent with the target over the next one to two years, even with lower levels of the exchange rate.
Yesterday’s meeting saw the board consider the latest forecasts for growth and inflation from RBA staff (they will be published on Friday in the third Statement of Monetary Policy for the year).
There was also no change in that outlook, as outlined in Mr Stevens’ statement.
"In Australia, growth was firmer around the turn of the year, but this resulted mainly from very strong increases in resource exports as new capacity came on line; smaller increases in such exports are likely in coming quarters. Moderate growth has been occurring in consumer demand. A strong expansion in housing construction is now under way.
"At the same time, resources sector investment spending is starting to decline significantly. Signs of improvement in investment intentions in some other sectors are emerging, but these plans remain tentative as firms wait for more evidence of improved conditions before committing to significant expansion. Public spending is scheduled to be subdued. Overall, the Bank still expects growth to be a little below trend over the year ahead."
