RBA leaves cash rate unchanged at 2.5%

The Australian Dollar skyrocketed to its highest level in 2014 amid the Reserve Bank of Australia's decision to maintain the benchmark interest rate unchanged at 2.5% for the eleventh straight month. The Aussie rose to 94.6 U.S. cents immediately after the announcement on Tuesday. Last time when the RBA changed the rate was in August 2013, when the central bank cut it by a quarter of percentage point. Many economists do not expect any rate change at next board meeting on August 5. They believe the next move will entail rate hike, but not earlier than at the end of 2014.

The officials highlighted an apparent improvement in economic growth, but it will take some time for unemployment to decline consistently despite upbeat data for the labour market in recent months. Thus, Glenn Stevens, the RBA Governor, believes that low cash rate is helping to bolster the Australian economy, saying that the growth will be a little below trend over the year ahead. Inflation is expected to be in line with the 2-3% target over the next two years. Stevens also added that the monetary policy is appropriately configured to support sustainable economic growth and inflation consistent with its target band. Furthermore, he reiterated that the Australian Dollar remains high by historical standard, especially given drops in key commodity prices.