Dollar dips as Reserve Bank keeps interest rates on hold

The dollar has dipped to a two-and-a-half-month low, after the RBA opted to keep interest rates steady at a record-low 1.5pc.

The RBA has kept interest rates on hold at an all time low of 1.5 per cent. (AAP Image/Dean Lewins)

The Reserve Bank of Australia has left official interest rates on hold as expected after its monthly board meeting.

RBA Governor Philip Lowe said the central bank decided to leave the cash rate unchanged at a record low 1.5 per cent.

“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,” Dr Lowe said, repeating the final paragraph from his September statement.

However, whereas last month the statement said conditions in the global economy “are continuing to improve”, this month it merely said conditions “have improved.”

The RBA also noted APRA’s macroprudential curbs on risky lending have started to bear fruit.

“Following some tightening in credit conditions, growth in borrowing in investors has slowed a little recently,” the statement said.

A potential implication is that if financial risks are abating, the RBA could consider another cut in interest rates if required.

The Australian dollar dipped from US78.17c to a 2-and-a-half-month low of US77.93c after the statement was released.

However, the RBA also noted that employment has “continued to grow strongly” in recent months, and while wage growth “remains low”, stronger conditions in the labour market “should see some lift in wage growth over time.” Inflation remains low but is expected to pick up gradually, the RBA added.

The RBA also said there have been “more consistent signs that non-mining investment is picking up” in recent months.

“A consolidation of this trend would be a welcome development” and a “large pipeline of infrastructure investment is also supporting the outlook”

Against this, slow growth in real wages and high levels of household debt are likely to constrain household spending, the RBA said in a repeat of its comments last month.