Members of the Reserve Bank of Australia's monetary policy board said that a strengthening Australian dollar could cause problems for the country's economic rebalancing, minutes from the bank's July 5 meeting revealed on Tuesday.
The country is still recovering from the major drop in commodity prices, the bank added.
"The transition of economic activity to the non-resources sector was now well advanced and recent data suggested that growth had continued at a moderate pace in the June quarter," the minutes said.
At the meeting, the board retained its record low interest rate of 1.75 percent for the second straight month.
The bank had cut its rate by 25 basis points in May, which was the first reduction in a year.
Recent data suggests overall growth is continuing despite a very large decline in business investment, the bank noted.
Low interest supported domestic demand and the lower exchange rate since 2013 is helping the traded sector. However, the bank cautioned that an appreciating exchange rate could complicate the necessary economic adjustments.
The members said that any future moves would be data-dependent, especially since inflation remains below the target range.
Given very subdued growth in labor costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.
"The board judged that holding monetary policy steady would be prudent at this meeting," the minutes said.
On Brexit, the RBA said most markets continued to function effectively. Any effects of the referendum outcome on global economic activity remain to be seen and, outside the effects on the UK economy itself, may be hard to discern.
"The United Kingdom's vote to leave the European Union had led to considerable financial market volatility, which had since settled. Financial markets had functioned effectively throughout the episode and borrowing costs for high-quality borrowers remained low," the minutes said.
by RTT Staff Writer
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