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Australian central bank holds key rate at 1.5%

The Reserve Bank of Australia decided to maintain its cash rate at 1.5% as keeping the monetary policy unchanged "would be consistent with sustainable growth in the economy and achieving the inflation target over time," Governor Philip Lowe said in a Feb. 6 statement.

"The low level of interest rates is continuing to support the Australian economy," said Lowe. "Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual."

He said a further gradual reduction in the unemployment rates is expected, citing forward-looking indicators that point to robust employment growth over the period ahead. But he noted that wage growth remains low in spite of the improving labor market. "This is likely to continue for a while yet, although the stronger economy should see some lift in wage growth over time," the governor said.

Lowe said GDP growth is expected to average "a bit above" 3% over the next couple of years, with support coming from increased public infrastructure investment. But while business conditions are positive and the outlook for non-mining business investment has improved, he said the outlook for household consumption remains a source of uncertainty.

The governor expects inflation to remain low "for some time" due to low growth in labor costs and strong retail competition, with the 2018 CPI inflation coming in at "a bit above" 2%. Lowe foresees inflation gradually picking up as the economy strengthens.