The Reserve Bank of Australia has left the official cash rate on hold at 2% at its June monetary policy decision.

On the question of whether the RBA would adopt an explicit easing bias – make a definitive statement that interest rates may be lowered further – the answer is no.

Instead, the board stated that “information on economic and financial conditions to be received over the period ahead will inform the Board’s assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target”.

This, while not closing off the chance of further policy easing, is far weaker language than they have used in the past when adopting an explicit easing bias. An example of this can be found from its April monetary policy statement, shortly before interest rates were cut in May.

Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will continue to assess the case for such action at forthcoming meetings”.

(Emphasis added.)

The June policy statement was largely unchanged from what was communicated in May. Here are the the key phrases on the Australian Dollar and the domestic economic outlook.

On the Australian Dollar the language was unchanged.

“The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices”

Reflective of weakness seen in recent wage and business capital expenditure data, the RBA retain the view that the economy will continue to grow below its long-run average.

“In Australia, the available information suggests the economy has continued to grow, but at a rate somewhat below its longer-term average. Household spending has improved, including a large rise in dwelling construction, and exports are rising. But a key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors and this is likely to persist over the coming year. Public spending is also scheduled to be subdued. Overall, the economy is likely to be operating with a degree of spare capacity for some time yet. With very slow growth in labour costs, inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.

In light of the benign growth and inflation outlook in the years ahead, the RBA noted that “monetary policy needs to be accommodative”. While they did not insert an explicit easing bias in today’s statement, the door to future rate cuts remains open.

They are now waiting on more domestic economic information, and more importantly, whether the US Federal Reserve will begin to normalise interest rates in the months ahead. Clarity on those questions will largely determine whether Australia will see any more interest rate cuts.

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