Australia's central bank said there could be room for a further interest rate cut, despite the cash rate sitting at its lowest level since the bank's 1959 establishment.
Minutes of the Reserve Bank of Australia's July 2 board meeting released Tuesday said the impact of low rates "had further to run" and the official cash rate of 2.75 percent was appropriate given currency depreciation.
But it added: "The Board also judged that the inflation outlook, although slightly higher because of the exchange rate depreciation, could still provide some scope for further easing, should that be required to support demand."
The Australian dollar has depreciated against the US currency in recent months, and on a trade-weighted basis is about 12 percent below the high reached in early April and close to its lowest level since September 2010.
The Australian dollar rose from US$0.9087 to as high as US$0.9173 after the release of the RBA comments. By late Tuesday it had eased back slightly to US$0.9156.
The RBA said economic growth was building at a slightly below-trend pace, while labour market conditions were "somewhat subdued".
As investment in Australia's commodities boom slows, the bank has attempted to spur non-mining areas of the economy with rate cuts -- some 200 basis points in total from 4.75 percent in October 2011.
The board meeting noted that the effects of lower interest rates were "apparent across a range of indicators and, given the lags involved in the transmission of monetary policy, this process had further to run".
It said while the depreciation of the dollar was expected to add a little to inflation over time, the forecast was for inflation to remain consistent with the RBA's 2.0-3.0 percent target range.
"Members noted that it was possible that the exchange rate would depreciate further over time as the terms of trade and mining investment declined, which would help to foster a rebalancing of growth in the economy," it said.
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