While there were speculations that the Reserve Bank would cut the cash rate following two previous drops in November and December, its been left unchanged at 4.25 per cent.

RBA governor Glenn Stevens said information on the Australian economy continues to suggest growth close to trend, with differences between sectors.

“CPI inflation has declined as expected, as the large rises in food prices resulting from the floods a year ago have been unwinding. Year-ended CPI inflation will fall further over the next quarter or two,” he said.

“In underlying terms, inflation is around 2½ per cent. Over the coming one to two years, and abstracting from the effects of the carbon price, the Bank expects inflation to be in the 2 to3 per cent range.”

The RBA also highlighted that the exchange rate has risen even though the terms of trade have started to decline.

“This is largely a reflection of a decline in the euro against all currencies. Nonetheless, the Australian dollar in trade-weighted terms is somewhat higher than the Bank had previously assumed,” Stevens said.

According to the RBA, it will continue to monitor information on economic and financial conditions and adjust the cash rate as necessary to foster sustainable growth and low inflation.