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May 28, 2017

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Australian central bank keeps rates on hold at a record low of 2.5%

SYDNEY--Australia's central bank kept interest rates on hold at a record low 2.5 percent Tuesday, as a resilient currency and softening commodity prices hobbled the economy's shift away from mining.

The Reserve Bank left the cash rate unchanged for its 10th straight meeting as it continued to highlight the need for accommodative monetary policy to "provide support to demand and help growth to strengthen over time."

But it expanded on its frustrations about the recent strength of the Australian dollar, saying it was "offering less assistance than it might" in lifting growth in non-resources sectors.

"The exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy," RBA Governor Glenn Stevens said.

The local unit jumped by a quarter of one U.S. cent to 94.44 U.S. cents following the release of the central bank's statement.

JP Morgan's chief economist for Australia Stephen Walters said it was clear the RBA was content to stay the course at this time, although he questioned why it was not more robust in its commentary on the exchange rate.

"The big issue is ... why they are not re-engaging on the Aussie dollar, which seems a little puzzling," Walters said.

He added that financial markets had hoped for a stronger acknowledgement from the RBA that the currency's strength was hurting the economy.

"They didn't take any opportunities to say something like, 'it's uncomfortable or unsustainable.'"

Australia is transiting away from an unprecedented boom in the mining sector, which has helped it avoid a recession for more than two decades.

The economy has lost some momentum after a strong start to the year saw it post 1.1 percent growth in the first-quarter, with recent data recording an easing in new building approvals as well as a moderation in retail sales and house prices.

Consumer confidence also weakened in the wake of a tough federal budget in May that cut back on government welfare and spending, although it has recovered slightly since then.

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