After talking down the Australian dollar toward the end of last year, the Reserve Bank of Australia (RBA) is finally content with the current level of the exchange rate, which is just below USD0.90. The central bank also seems satisfied with maintaining the status quo on the interest rate front. These are two of the key takeaways from the recently published minutes of the RBA’s February monetary policy meeting.

Although the RBA lowered its benchmark short-term cash rate to an all-time low of 2.5 percent back in August, it can take as long as two years for the full effect of monetary policy to be felt throughout the economy. The central bank has been on a rate-cutting cycle since late 2011, during which it’s lowered rates eight times from the cash rate’s post-Global Financial Crisis high of 4.75 percent.

Sectors that are sensitive to interest rates, particularly housing, have performed well in this environment, though numerous analysts worry that the rise in real estate prices suggests a bubble could be forming. These concerns will likely keep the RBA from lowering rates even further, unless the economy continues to worsen.

For instance, following the February meeting, the Australian Bureau of Statistics reported that the unemployment rate had risen to a 10-year high, at 6 percent. On the other hand, it’s important to remember that job growth typically lags an economic rebound, and the RBA sees some signs of a firming economy.

For now, housing is one of the few obvious pockets of strength in the Australian economy, and the central bank hopes that the wealth effect resulting from higher home prices and a rising stock market will stoke consumer demand.

One source of admitted puzzlement for the central bank’s policymakers has been inflation’s stronger-than-expected showing during the fourth quarter. As we discussed in a recent Down Under Digest, the country’s consumer price index (CPI) rose nearly twice as fast as economists had predicted. On a year-over-year basis, prices had climbed by 2.7 percent, which is near the upper threshold of the RBA’s targeted annual inflation range of 2 percent to 3 percent.

Should that trend be sustained, then the RBA will likely hold steady on rates, since maintaining inflation within this range is its core mandate. Even so, the bank believes that it’s possible the fourth-quarter numbers were merely a blip due to statistical noise. After all, the third quarter saw the CPI decline by two-tenths of a percentage point, to 2.4 percent, from the prior quarter.

Of course, the Australian dollar fell sharply during the second half of the year, and that means imports were more expensive in local currency terms. But a lower exchange rate isn’t typically reflected in the CPI quite so quickly, though the RBA allows that this is still a possibility. The next two quarters should provide sufficient evidence as to whether the sudden jump in inflation was transitory or the beginning of a longer-term trend.

For the moment at least, the bank seems content with where things stand, noting that its monetary policy is having an expansionary effect in key areas such as consumption, housing, business conditions, and exports. As such, the RBA forecasts a period of stability for interest rates.