The Reserve Bank of Australia has kept its cash rate unchanged at 2.75% but governor Glenn Stevens is not ruling out a cut to 2.5%, the same as New Zealand's official cash rate.
The Australian dollar was down marginally at US92.01c against US92.24c before the announcement. But the ASX 200 was 2.1% up immediately after the statement, as the market picked up the tone of the commentary from the Reserve Bank, Craigs Investment Partners broker Chris Timms said.
In a statement, Mr Stevens said the central bank's board decided the stance of monetary policy remained ''appropriate for the time being''.
The board also judged the inflation outlook
might provide some scope for further easing, should that be required to support demand.
''Recent information is consistent with global growth running a bit below average this year, with reasonable prospects of a pick-up next year.''
Commodity prices had declined further but, overall, remained at high levels by historical standards. Inflation had moderated over recent months in a number of countries, he said.
Globally, financial conditions remained ''very accommodative''. However, a reassessment by the market of the outlook for monetary policy in the United States had seen a noticeable rise in sovereign bond yields from exceptionally low levels. Volatility in financial markets had increased and there has been some widening of credit spreads, Mr Stevens said.
In Australia, the recent national accounts confirmed the economy had been growing below trend over the recent period. That was expected to continue in the near term as the economy adjusted to lower levels of mining investment. The unemployment rate had edged higher over the past year and growth in labour costs had moderated, he said.
''Inflation has been consistent with the medium-term target and is expected to remain so over the next one to two years - notwithstanding the effects of the recent depreciation of the exchange rate.''
The easing in monetary policy during the past 18 months had supported interest-sensitive spending and asset values and further effects could be expected over time. The pace of borrowing had remained relatively subdued, though recently there were signs of increased demand for finance by households, Mr Stevens said.
The Australian dollar had depreciated by about 10% since early April, although it remained at a high level. It was possible the exchange rate would depreciate further, fostering a rebalancing of growth in the economy.
The board judged the easier financial conditions would contribute to a strengthening of growth over time, consistent with achieving the inflation target, he said.
