Australia's central bank maintained its benchmark cash rate at 2.25 percent, surprising most economists who had expected a cut, and repeated its guidance from last month that "further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target."
The Reserve Bank of Australia (RBA), which cut its rate by 25 basis points in February, acknowledged the decline in the exchange rate of the Australian dollar, known as the Aussie, against the U.S. dollar in the last year and toned down its criticism of its value.
In his statement, RBA Governor Glenn Stevens said further depreciation of the Aussie seemed likely, dropping his previous description of the currency as "above most estimates of its fundamental value."
However, he repeated that a "lower exchange rate is likely to be needed to achieve balanced growth in the economy."
The Aussie has been weakening against the U.S. dollar since September 2014 and was trading at 76 U.S. cents earlier today, down from 82 cents at the start of the year, a drop of 7 percent. Compared with September last year it has fallen 19 percent and is now close to the level of 75 U.S. cents, which the RBA has described as a fair value.
The RBA repeated that Australia's economic growth remains below trend due to overall weak domestic demand and falling capital expenditure, which is pushing up unemployment.
This means that inflation is likely to remain consistent with the RBA's 2-3 percent target over the next one to two years, even with a lower exchange rate.
Australia's headline inflation rate eased to 1.7 percent in the fourth quarter of last year from 2.3 percent the previous quarter while its Gross Domestic Product rose by 0.5 percent in the fourth quarter of last year for annual growth of 2.5 percent, down from 2.7 percent in the third quarter.
The unemployment rate eased slightly to 6.3 percent in February from January's 6.4 percent.
The Reserve Bank of Australia issued the following statement by its governor, Glenn Stevens: