He said headline inflation was expected to increase from 2.1% to 2.5% by 2020 but it was likely to slip in the short term - to 1.75% by the end of 2018 - as changes to state government programs led to lower measured prices for some services.
Essentially, the RBA's unsurprisingly cautious and optimistic tone was perceived as hawkish considering the broad trade uncertainties, which bolstered Australian Dollar demand on Tuesday.
"Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual", Reserve Bank of Australia Governor Philip Lowe said in a disclosure. This Friday, the bank is scheduled to release economic forecasts that are likely to set growth plans. In other words, markets see only around a 50% probability the RBA will have raised its interest rate from 1.5% to 1.75% by then. Weston said the kiwi dipped because the "market expected a slightly more downbeat assessment but that didn't happen".
But Lowe remained generally positive and the bank forecast Australia's gross domestic product to average "a bit above" 3 percent growth in 2018 and 2019.
"The most recent Quarterly Business Survey from the National Australia Bank found that favourable business conditions continue and point to business investment growth". Lowe amended his language on China's economy in the statement, shifting from continuing to grow solidly to saying growth "has slowed a little".
With Australia the most China-dependent economy in the developed world and prospects of a trade war intensifying, the outlook could begin to alter.
"Consumer sentiment has a significant impact on the economy and while the latest Westpac Consumer Sentiment survey reported the most positive reading since November 2013, the overall level of sentiment is below the long-term average as consumers continue to feel pressure from sluggish wages, rising electricity and petrol prices and declining dwelling values". However lending standards are expected to tighten further, which could make it harder for some to secure a home loan. Telstra shares suffered yesterday and played a big part in constraining the market, but it was the materials space that can take the lion's share of responsibility for the ASX's declines, falling 1 per cent amid selling pressure in commodities markets. "There is competition for borrowers of high credit quality".
"Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time", the bank said in a statement.
While Lowe said "one-off declines in some administered prices in the September quarter are expected to result in headline inflation in 2018 being a little lower than earlier expected", the RBA still expects inflation to be higher in 2019 and 2020 than it is now.
"Our relative youth and higher fertility rates mean that the dependency ratio is expected to remain lower than elsewhere over the next generation", he said.
Last month, Australian data showed that the economy was doing well with low unemployment rate, high participation rate, and improved retail sales.