The Reserve Bank of Australia (RBA) has chosen to put off a cut in interest rates, announcing Tuesday that borrowing costs will remain at a record low of 2.25 percent.
The news sent the Australian dollar surging 1 percent to $0.7697, as markets had priced in an 80 chance of a rate cut. The benchmark S&P ASX 200 stock index pulled back to trade 0.4 percent higher after rising more than 1 percent earlier.
In the statement accompanying the decision, the central bank said that further easing might be appropriate as data suggests the economy continues to grow at a below-trend pace. It also noted that growth in lending to housing investors appears stagnant.
The decision brought swift criticism from analysts expecting a rate cut. They cite the value of the Aussie dollar, which still appears high when compared with plummeting iron ore prices, which fell below $50 metric ton last week for the first time in 10 years.
Iron ore accounts for a fifth of the value of Australia's total exports and some commentators reckon the Aussie, which has fallen 20 percent fall against the U.S. dollar since last June to trade at $0.75 currently, is still too strong to bolster demand for the commodity.
"By deciding not to cut interest rates today from the current level of 2.25 percent, the Reserve Bank of Australia missed an opportunity to achieve the further weakening in the Australian dollar that it so badly crave," according to a research note from Paul Dales, chief Australia & NZ economist at Capital Economics.