RBA keeping Australian dollar on a tight leash

The RBA cut interest rates in August in part to avoid the "complications" of an appreciating Australian dollar for domestic growth.

In the minutes of its August board meeting, released this week, the Reserve Bank laid out the case for its decision to lower the official cash rate by 25 basis points to 1.5 per cent on 2 August.

Commodity prices have risen since the RBA's July meeting, the notes stated, and the Australian dollar exchange rate had "appreciated a little since earlier in the year".

"Changes to expectations about central banks' policies continued to have an important influence on global exchange rate developments," the RBA said.

The outlook for underlying inflation is little changed, with recent CPI data indicating inflation is likely to remain low "for some time".

Economic growth is expected to pick up and move above estimates by the middle of 2017, the RBA said.

Low interest rates and the depreciation of the Australian dollar since 2013 are expected to continue to support Australia's transition to a service-based economy following the end of the mining boom.

However, an "appreciating exchange rate could complicate this", the central bank said – indicating its preference for a lower exchange rate.

The RBA also pointed to an "easing in house price pressures" thanks to a tightening in lending standards.

"Taking all these considerations into account, the Board, on balance, judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting," the RBA said.

[Related: Bank modelling has RBA cutting rates to 1 per cent]

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