Initially little changed after the statement was released, the Australian dollar later on Tuesday appreciated by about 0.5 per cent to US73.83¢ as Reserve Bank analysts noted the shift in emphasis.

Dumping references to the negative economic impact of a rising currency comes after the US Fed last month flagged further rates hikes, which have put upward pressure on the US dollar.

In turn, that has helped spur Australian-dollar earnings for exporters.

Rate hikes unlikely

The change in language hints at a Reserve Bank becoming more confident that rising US rates will keep the Australian dollar from becoming overvalued – as it has been for much of the past decade given the central bank's relatively higher interest rate settings compared to offshore counterparts.

The Reserve Bank has left the cash rate steady since August 2016. Nicholas Rider

Despite the changed currency position, the Reserve Bank maintained its cash rate at 1.5 per cent for a 21st straight meeting, extending the most sustained period of monetary policy stimulus on record.

Chances of official rate hikes remain low, partly because the wholesale funding squeeze has already forced smaller lenders such as the Bank of Queensland and AMP Bank to lift their home loans rates.


Many analysts believe the bigger banks are likely to follow suit in coming months, potentially exacerbating falling house prices in Sydney and Melbourne – which Dr Lowe noted in his statement on Tuesday.

Data released this week shows Sydney just posted the largest annual fall in prices since the height of the global financial crisis in early 2009.

The RBA described wages growth as having troughed and cited mounting reports of skills shortages. Michele Mossop

The lift in funding costs creates a double-edged sword for the central bank as it weakens its efforts to keep financial conditions loose until board members can be sure that wages growth will drive inflation back into Dr Lowe's 2-3 per cent target range.

At the same time it potentially further delays the return to a more neutral official interest rate that would enable the bank to respond proactively to a future crash.

Dr Lowe expressed renewed confidence in a fall in the jobless rate from 5.4 per cent after being "steady at around 5.5 per cent for much of the past year".

He said wages growth appears to have troughed and cited mounting reports of skills shortages.

'A little more upbeat'


"All of this means that governor Lowe will continue to leave the cash rate at 1.5 per cent for the foreseeable future, whilst waiting for the pick-up in investment and fiscal spending to kick in next year and into 2020," said Triple T Consulting economist Sean Keane.

"His objective in the meantime will be one of maintaining strength in the labour market, and confidence in the economy in an attempt to avoid a downward spiral in confidence, consumption, investment and activity."

ANZ economist David Plank, who helps publish a gauge of how markets have interpreted the Reserve Bank's "bias" – either for rate hikes or rate cuts – said Tuesday's statement "seems a little more upbeat than the last".

"The wisdom of the crowd disagrees, however, with the RBA bias index dropping to neutral."

Dr Lowe reiterated that his biggest concerns on the global front were the risk of a trade war triggered by the US, and emerging-market economy strains caused by the rising global interest rate environment that have hurt lower-rated capital-importing countries.

Participants in The Australian Financial Review's quarterly survey of economists, published Monday, pushed out the expected timing of the next Reserve Bank interest rate rise by a year.

The median economist surveyed by the Financial Review now sees interest rates on hold to June 2019, compared with the March survey, which indicated the Reserve Bank would hike twice by this time next year.