The headline rate returned to the bottom end of the RBA's 2 percent to 3 percent target in the first three months of the year after spending nine quarters below it, but the core consumer prices measure is yet to catch up.
The central bank left the cash rate at a record low 1.5 per cent at Tuesday's monthly board meeting, noting annual growth was expected to have slowed in the March quarter.
"This more conservative forecast is broadly consistent with the Reserve Bank, global organisations and private sector economists", he said. As a result, net exports trimmed a larger-then-expected 0.7 percentage points from growth, leading some analysts to revise down their forecasts for GDP.
The cash rate has been on hold for 10 consecutive months since August previous year, when the RBA slashed rates to combat weaker-than-expected inflation. Lowe said in a statement. Employment growth has been stronger over recent months, although growth in total hours worked remains weak.
A big unknown is household consumption which surprised with its strength late in 2016, but is being burdened by record-low wage growth and high levels of mortgage debt.
The Australian dollar climbed after the rate announcement, hitting 74.87 U.S. cents, having earlier fallen to a low of 74.57 on weaker-than-expected exports data. Inflation is expected to increase gradually as the economy strengthens.
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"The last thing the RBA wants is another surge in house price growth, fuelled by unsustainable growth in household leverage", he said. Recent evidence suggests the risks to both are finely balanced.
Reserve Bank governor Philip Lowe dismissed the likely slowdown as a temporary "quarter-to-quarter variation in the growth figures", insisting that robust jobs growth and an improvement in business conditions would send GDP growth back above 3 per cent in coming years.
The Reserve Bank of Australia slashed 300 basis points from borrowing costs between November 2011 and August a year ago to support non-resources industries as the economy transitions out of a mining investment boom.
Dr Lowe's post-meeting remarks provided little support for financial market doves betting on further rate cuts, with traders sending the Australian dollar as high as US74.96¢ from a low of US74.57¢ before the meeting.
"My sense is they're not going to cut interest rates unless something particularly severe happens", said Paul Dales, chief economist for Australia and New Zealand at Capital Economics.