The Reserve Bank of Australia (RBA) added that most measures of business confidence are at, or above, average and non-mining business investment has risen as the economy continues its transition following the end of the boom in mining investment.
Australia is a major exporter of iron ore, coal, gold, crude oil and natural gas, with the gradual rise in prices in the last year, following a slump in 2014, improving its terms of trade and thus export earnings.
While the country's economy grew by an annual rate of 2.4 percent in the fourth quarter of last year, up from 1.9 percent in the third quarter, the unemployment rate jumped to 5.9 percent in February - the highest rate since January 2016 - from 5.7 percent in January.
As in recent months, the RBA said the depreciation of the Australian dollar since 2013 had assisted the economy in its transition but "an appreciating exchange rate would complicate this adjustment."
The Australian dollar has firmed since January 2016 but remains well below par to the U.S. dollar that was seen from 2011 to early 2013.
Today the Australian dollar, known as the Aussie, was trading at 1.315 to the U.S. dollar, up 5.7 percent since the start of this year.
Australia's inflation rate rose to 1.5 percent in the fourth quarter of last year form 1.3 percent in the previous quarter and the RBA expects inflation to pick up during the year to be above 2 percent. The RBA targets inflation of 2 percent to 3 percent.
The central bank also addressed the buoyant housing market in the major cities of Sydney and Melbourne, expressing hope that strong lending standards should help address the risks associated with high and rising level of debt that consumers are taking on to purchase properties.
"Growth in household borrowing, largely to purchase housing, continues to outpace growth in household income," the RBA said, calling on lenders to reduce the use of interest-only housing loans.
The Reserve Bank of Australia issued the following statement by its governor, Philip Lowe:
"At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
Conditions in the global economy have improved over recent months. Both global trade and industrial production have picked up. Labour markets have tightened in many countries. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth is being supported by higher spending on infrastructure and property construction. This composition of growth and the rapid increase in borrowing mean that the medium-term risks to Chinese growth remain. The improvement in the global economy has contributed to higher commodity prices, which are providing a significant boost to Australia’s national income.
Headline inflation rates have moved higher in most countries, partly reflecting the higher commodity prices. Core inflation remains low. Long-term bond yields are higher than last year, although in a historical context they remain low. Interest rates have increased in the United States and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively.
The Australian economy is continuing its transition following the end of the mining investment boom. Recent data are consistent with ongoing moderate growth. Most measures of business confidence are at, or above, average and non-mining business investment has risen over the past year. At the same time, some indicators of conditions in the labour market have softened recently. In particular, the unemployment rate has moved a little higher and employment growth is modest. The various forward-looking indicators still point to continued growth in employment over the period ahead. Wage growth remains slow.
The outlook continues to be supported by the low level of interest rates. Lenders have recently announced increases in mortgage rates, particularly those paid by investors. Financial institutions remain in a good position to lend. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.
Inflation remains quite low. Headline inflation is expected to pick up over the course of 2017 to be above 2 per cent. The rise in underlying inflation is expected to be a bit more gradual with growth in labour costs remaining subdued.
Conditions in the housing market continue to vary considerably around the country. In some markets, conditions are strong and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Growth in rents is the slowest for two decades.
Growth in household borrowing, largely to purchase housing, continues to outpace growth in household income. By reinforcing strong lending standards, the recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness. Lenders need to ensure that the serviceability metrics that they use are appropriate for current conditions. A reduced reliance on interest-only housing loans in the Australian market would also be a positive development.
Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time."
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