Sydney - Australia's central bank kept interest rates at the historic low of 2 percent for a seventh month Tuesday, but indicated further easing could be in the pipeline.
The Reserve Bank of Australia (RBA) had been widely expected to hold rates steady after governor Glenn Stevens last week urged people to “chill out” and adopt a wait-and-see approach.
“The board again judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate,” he said.
While growth remained below trend, Australia's economy appeared to be undergoing moderate expansion, despite “a large decline in capital spending in the mining sector”, Stevens said.
Inflation was low, employment growth solid and there were indications conditions in non-mining sectors were gradually improving, he added.
But he noted, in a statement almost identical to November's, that “the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand”.
The Australian dollar rose on the statement, up from 72.55 US cents to above 72.70 US cents, while the share market climbed to over 5 260 points.
Economists had widely expected the cash rate to stay on hold after comments Stevens made to a business dinner last week in which he said he was “more than content to lower it if that actually helps”.
“As for February, that's three months away, we've got Christmas, we should just chill out and see what the data says,” he added. The RBA board do not meet in January.
The RBA has been gradually cutting rates, shaving off 275 basis points since late 2011 as a decade-long mining boom unwinds.
“It always looked as though the RBA wasn't going to give the economy an early Christmas present at its policy meeting today,” said Paul Dales, chief Australia and New Zealand economist for Capital Economics. “The RBA maintains its implicit easing bias.”
Dales said the RBA may need to lower rates further next year if growth fails to rebound, with a potential cut to 1.5 percent in 2016.
Quarterly growth figures are due Wednesday.
AFP