The Reserve Bank of Australia (RBA) left open the possibility it might cut interest rates further, minutes from its May 5 meeting showed, triggering a slump in the Australian dollar on Tuesday.
In the minutes from the meeting that saw the RBA cut rates to a record low of 2 percent, the central bank acknowledged that board members had agreed not to give guidance on future policy action at that time.
But this does not limit its ability to adjust policy again at future meetings.
The Australia dollar fell to a session low of $0.7954 before rebounding to $0.7991.
"Members agreed that...the statement communicating the decision would not contain any guidance on the future path of monetary policy," the minutes said.
"Members did not see this as limiting the Board's scope for action that might be appropriate at future meetings," it added.
The move to refrain from providing a forecast earlier this month had many market watchers penciling no more easing from the central bank in the near term, sparking a rally in the Aussie dollar.
"Today's RBA minutes from the May board meeting provided little new information on the economy. The minutes did, however, provide an explicit easing bias – something that was absent from the post-meeting statement," said Felicity Emmett of ANZ Research.
The RBA said members were aware of the potential risk that low rates could spur excessive borrowing from already highly geared households and fuel even stronger growth in housing prices, particularly in Sydney.
"On the data available for this meeting, however, it did not appear that the growth of housing credit, either for investment or owner-occupancy purposes, had been increasing over recent months," it said.
In fact, housing price growth outside of Sydney and Melbourne had declined, the RBA added.
"The Bank would continue to work with other regulators to assess and contain the risks arising from the housing market."
The RBA said a cut in rates would provide additional support to economic activity by reinforcing encouraging trends in household demand. In turn, this would support non-mining business investment and ultimately lead to stronger labor market condition.
On the Australian dollar, board members again agreed that a weaker currency was both likely and necessary, particularly given the significant declines in key commodity prices.
The RBA next meets on June 2.
- Reuters contributed to this report.