The Reserve Bank of Australia (RBA), as expected, kept the current overnight cash rate of 2.75 per cent when it central bank met on Tuesday, July 2.

"At today's meeting the Board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target," RBA Governor Glenn Stevens said in a statement.

The current key lending rate is the result of a 25 basis-point cut made by the RBA in May.

Brian Redican, chief economist at Maccquarie Group, explained that the RBA normally waits for the release by the Bureau of Statistics of inflation rate before it adjusts the overnight cash rate. He added that there was a lot of volatility in the financial markets in June which warrants the RBA to have it settle down before creating more impact on the Australian economy through a rate adjustment.

Inflation rate went up to 2.4 per cent in the last 12 months to June, slightly up from the 2.2 per cent registered in the year to May.

"Today's data support our forecast for no change in monetary policy tomorrow," Citi economists Josh Williamson and Paul Brennan wrote in a research note on Monday, quoted by the Brisbane Times.

"On balance, the data shows activity in manufacturing and the secondary housing market having improved with no increase inflation that will enable the RBA to maintain a mild easing bias," the two added.

Mr Williamson added the RBA is not in a hurry to move interest rates and the banking community will wait for the data to push the central bank into action.

Nomura economist Martin Whetton said that inflation data would only be released by the end of July, thus the central bank would likely wait until August before it would cut interest rates again.

"Even though the currency has fallen, the overall weakness in things like the Chinese economy, the European economy and Asia in general us enough to prompt them to go again," he said.

However, Mr Redican said that while analysts are not expecting a rate reduction on Tuesday, July 2, if the Australian economy would continue to weaken and there is an increase in unemployment, the RBA would likely need to cut rates aggressively in the next six months.

"We would expect the cash rate to fall from 2.75 per cent now down to 2 per cent by the end of the year," he forecast.

On Tuesday, the Aussie dollar dropped and traded at 91.69 U.S. cents at 3:15 p.m. in Sydney from 92.21 cents before the RBA decision. Also affected by the RBA policy the three-year bond yield, which went down 2.77 per cent from 2.79 per cent.

Mr Stevens added, "It decided that the stance of monetary policy remained appropriate for the time being. The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand."

RELATED STORIES