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Australia keeps interest rates at record low

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Australia's central bank kept interest rates at a historic low of 2.0 per cent on Tuesday, playing down recent global volatility as it noted the economy was moderately expanding and inflation contained.

[SYDNEY] Australia's central bank kept interest rates at a historic low of 2.0 per cent on Tuesday, playing down recent global volatility as it noted the economy was moderately expanding and inflation contained.

The Reserve Bank of Australia (RBA), which last lowered rates from 2.25 per cent in May, said the Australian dollar was also adjusting to lower commodity prices as a decade-long mining boom unwinds.

"The board today judged that leaving the cash rate unchanged was appropriate at this meeting," RBA governor Glenn Stevens said in a statement.

Mr Stevens said the global economy was expanding at a moderate pace, assisted by stronger US growth as he noted recent softening in China and East Asia.

He said despite volatility associated with developments in China - where stock markets have plunged, sparking fears about the health of the country's powerhouse economy - other financial markets were relatively stable.

"In Australia, most of the available information suggests that moderate expansion in the economy continues," he said, ahead of the release of June quarter economic growth data on Wednesday.

"While growth has been somewhat below longer-term averages for some time, it has been accompanied with somewhat stronger growth of employment and a steady rate of unemployment over the past year." Mr Stevens added that while the Australian economy was likely to be operating with a spare degree of capacity for some time, inflationary pressures were contained and low interest rates were supporting borrowing and spending.

"The Australian dollar is adjusting to the significant declines in key commodity prices," Mr Stevens said of the currency, which has fallen solidly over the past year.

The dollar was fell slightly after the decision to 71.16 US cents.

Analysts said the decision to leave rates on hold suggested the prospect of further rate cuts had receded further.

Capital Economics said while the RBA had mentioned the recent turmoil in global markets, it had previously stated it did not expect falls in equity prices in China to have a major impact on real activity there.

"What would really worry the RBA would be signs of a marked slowdown in actual economic growth in China," it said.

TD Securities said the RBA kept a "cool head", and it was understandable the central bank was comfortable with the Aussie dollar tracking lower, meaning it did not have to cut the cash rate further and risk adding further fuel to booming Sydney house prices.

Westpac's Bill Evans said he expected rates to be on hold over the course of 2015 and 2016.

"Risks around that view are clearly to the downside with the labour market; momentum in domestic demand; the global economy and the Australian dollar remaining key swing factors," Mr Evans said.

AFP