RBA keeps cash rate at 2%, drops talk of ‘necessary’ currency decline

However, there are still a lot of fundamental headwinds facing the kiwi, including increased fears about the health of Australia’s largest trading partner, China, which is fuelling a collapse of commodity prices.

Board members are facing two conflicting pressures: to cut rates to stimulate the sluggish economy or to lift rates to cool the Sydney and Melbourne housing markets.

The consensus expects it to stand pat at 2.0% but a handful of forecasters expect a 25bp rate cut.

Governor Glenn Stevens kept much of the previous month’s language in his latest monetary policy decision statement, while adding that there had been “somewhat stronger growth of employment” and omitting reference to “stronger borrowing by businesses” that he used four weeks ago.

“Further information on economic and financial conditions to be received over the period ahead will inform the Board’s ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target”, the bank said in a statement.

“Overall, the economy is likely to be operating with a degree of spare capacity for some time yet”. The Board today judged that leaving the cash rate unchanged was appropriate at this meeting.

“Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities”.

The decision to leave rates on hold for a third consecutive month appears to diminish the chances that rates will eventually fall to 1.5 percent, Paul Dales, chief Australia & NZ economist at Capital Economics, said.

New figures for retail spending and global trade will also be released, although they are unlikely to alter the outcome of the central bank meeting. Sales of household goods drove the result while there was a small drop in food sales. “Credit is recording moderate growth overall”.