Central Banks

Australia leaves rates steady, warns on Aussie dollar

Deciphering the RBA's decision

The Reserve Bank of Australia (RBA) on Tuesday left its key interest rate steady at a record low of 2.5 percent, as expected, and said the Australian dollar remains "uncomfortably high."

In a statement following its final monetary policy meeting of the year, the RBA said the economy needs a weaker currency and that its sees below-trend growth continuing in the near term.

(Read more: Aussie stocks could rally 10% next year)

The Australian dollar, also known as the Aussie dollar, fell in response to the statement. It last traded at about $0.9084 to the U.S. dollar, down almost 0.25 percent on the day and within sight of last week's near three-month trough.

"For some time, they've been upping the ante on the Australian dollar being too high," said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors in Sydney.

Carolyn Hebbard | Flickr| Getty Images

"They've repeated the comments from a month ago. They probably think we've cut interest rates enough and the impact of past rate cuts is still coming though in the pipeline," he added.

(Read more: Aussie at risk of 25% fall in 2016)

The RBA has lowered borrowing costs eight times since late 2011 to bolster the economy, especially the non-mining sectors as investment in mining peaks

Australia has proved to be one of the most resilient economies in the developed world in recent years, underpinned by strong Chinese demand for local resources. But this year the outlook has dimmed, partly as a result of a slowdown in China's economy.

Analysts say there are some positive signs for the economic outlook. A report from Australia's Bureau of Statistics last week showed that businesses upgraded their spending plans for the year to June 2014 to A$166.8 billion (US$152 billion), up from A$161.6 billion.

Data released earlier on Tuesday showed Australian retail sales rose 0.5 percent in October from a month earlier, a touch stronger than forecasts.

(Read more: Australia to be 'odd one out' in 2014: Goldman Sachs)

"You can point to signs out there of light at the end of the tunnel. Retail sales today were pretty good, six months in a row of at least flat or positive numbers, which is a good sign. So the RBA is sitting comfortably at the moment," said AMP's Oliver.

were down 0.35 percent, showing a muted reaction to the RBA rate decision.

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