Rates unchanged as dollar falls

The Reserve Bank has left the cash rate on hold at 2.75 per cent at its July board meeting. Source: AAP

THE Reserve Bank of Australia has kept the cash rate unchanged as the falling Australian dollar does the central bank's work.

In a statement accompanying the decision to keep the rate at a record low of 2.75 per cent, RBA governor Glenn Stevens said the Australian dollar was still at relatively high levels.

That's despite the currency's fall of more than 10 per cent since early April, as an improving US economy strengthens the US dollar.

"It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy," Mr Stevens said.

"This is expected to continue in the near term as the economy adjusts to lower levels of mining investment."

He also said four rate cuts in 2012 have helped the economy.

"The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households," Mr Stevens said.

JP Morgan economist Tom Kennedy said there wasn't much new in the RBA's short statement, but it did highlight the sharp decline in the currency, which is helping the non-mining sectors of the economy.

"That rebalancing of growth away from mining to the other sectors of the economy is likely to get a leg up and we'll obviously continue to benefit from that," he said.

Mr Kennedy said the high Australian dollar was the crucial factor that led to the RBA's last cash rate cut in May.

He expects the RBA's next interest rate cut to be in November, followed by another in February 2014.

St George Bank chief economist Hans Kunnen said the RBA board was waiting to see whether the Australian dollar will fall further and what impact it would have on consumer prices.

"They're clearly thinking hard about the impact of currency both on demand and on inflation," Mr Kunnen said.

"They've told us there is scope for another move should that be required."

Mr Kunnen expects another rate cut, to 2.5 per cent, in August, following the release of inflation figures later this month.

CommSec economist Savanth Sebastian also believes further cuts are possible.

"The Reserve Bank warned last month that it would do what it takes to restore growth, and indeed the central bank still has plenty of ammunition left," he said.

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