RBA
Reserve Bank of AustraliaReuters

The Reserve Bank of Australia has said the board members decided to keep the cash rate and the exchange rate at their current levels in view of economic uncertainties.

"... (The members) noted that the no-change assumption for the cash rate was consistent with market expectations over the near term," the minutes of the 5 August policy review meeting published on 19 August showed.

The official cash rate has been kept at 2.5% since August 2013.

The Australian dollar strengthened to a 12-day high of 0.9343 against the US dollar from the previous close of 0.9325. It is now up 1.1% from the two-month low of 0.9238 touched on 8 August.

The RBA board said it considered the uncertainties surrounding the growth forecast for the economy and risks to the forecasts during the discussions.

"Members also noted the significant uncertainties around the growth forecast and the importance of considering the risks to the forecast as well as the central projection," the minutes showed.

"Members noted that there was inevitably a significant degree of uncertainty about the outlook, given the number of forces working in different directions."

The RBA said the earlier than expected decline in the exchange rate from its recent highs had helped in quickening inflation and added that the carbon price abolition would moderate price rise.

"Working in the other direction, the decline in the exchange rate since early 2013 had pushed up import prices and these higher prices 'across the docks' were being passed through to prices facing consumers."

"The recent abolition of the carbon price would push inflation lower in 2014/15 than earlier assumed."

The RBA said domestic inflationary pressures were likely to remain subdued, reflecting spare capacity in labour and product markets and GDP growth was expected to be below trend over 2014/15, before picking up thereafter.

Subdued wage growth and the factors that led to higher inflation recently are expected to ease keeping inflation consistent with the central bank target of 2-3%.

"Factors that had led inflation to be higher than expected over the past year, including the extent of pass-through to prices of the earlier depreciation of the exchange rate, were expected to ease over the forecast period," the RBA said.