Australia's central bank said the nation's economic outlook remains uncertain because of the conflicting forces at play and reiterated that interest rates are set to remain on hold.
Members "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 Reserve Bank of Australia said in minutes released yesterday of its August 5 meeting, where it kept the cash rate unchanged at a record-low 2.5 per cent. "Gross domesic product growth was likely to have slowed to a more moderate pace in the June quarter."
Governor Glenn Stevens, seeking to stoke domestic demand to compensate for slowing mine investment, has seen his efforts hampered by the strength of the Australian dollar.
Market pricing shows a higher chance of further policy easing after the nation's unemployment rate jumped to a 12-year high in July, the RBA cut its growth and inflation forecasts and wage growth stagnated.
"Growth is perhaps a little bit weaker than expected three or four quarters ago and uncertainty about the outlook still remains, and this is going to feed into whether they have to provide more stimulus to the economy," said Tom Kennedy, an economist at JP Morgan Chase.
The central bank noted the dollar remained "well above" its level in late January even as commodity prices have weakened and rate differentials between Australia and most other advanced economies have narrowed since then.