Australia central bank says low rates working, won't rule out more cuts

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Australia's central bank said there have been further signs that past cuts in interest rates are working to stimulate the economy, though it again would not rule out the chance of easing further if needed.

In minutes of the Dec. 3 policy meeting, the Reserve Bank of Australia (RBA) also said the local dollar is still painfully high despite the fact that it has weakened noticeably over the past month.

(Read more: No respite in sight for the battered Aussie)

The RBA left its cash rate unchanged at a record low 2.5 percent for a fourth month in December, having already cut by 225 basis points since late 2011. It holds its next policy meeting in February and markets are giving almost no chance of a cut.

"There had been further signs of the stimulatory effects of low interest rates, most notably in the housing market, and additional effects were still likely to be coming through," the RBA said.

"The Board's judgement remained that, given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady while continuing to gauge the effects of earlier reductions."

The RBA added that it would keep the door open to further rate cuts "should that be appropriate to support sustainable growth in economic activity, consistent with the inflation target."

The central bank has long said it would rather see the currency weaken further to help stimulate the export-exposed sectors of the economy rather than cut interest rates.

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

In a recent media interview, RBA Governor Glenn Stevens said he thought $0.85 was a more reasonable level than $0.95. Since his comments, the Aussie dollar has fallen below $0.90.

"While the exchange rate has depreciated over the month, members agreed that it remained uncomfortably high and a lower level would likely be needed to achieve balanced growth in the economy," the minutes said.

Indeed, the RBA said mining investment is likely to fall over the next few years and while other areas of business investment could be expected to increase from current very weak levels, that would take time.

(Read more: Australia leaves rates steady, warns on Aussie dollar)

On China, Australia's single biggest export market, the RBA said growth looked to have picked up in the second half of 2013.

"The Board would continue to examine the data over the months ahead to assess whether monetary policy remained appropriate," the minutes concluded.