Reserve Bank of Australia governor Philip Lowe says the war in the Ukraine is a new major source of uncertainty, as his board left the cash rate at a record low 0.1 per cent at its monthly meeting.
Dr Lowe said the global economy continues to recover from the COVID-19 pandemic, but inflation in parts of the world has increased sharply due to large increases in energy prices and disruptions to supply chains at a time of strong demand.
"The prices of many commodities have increased further due to the war in Ukraine," Dr Lowe said in a statement on Tuesday.
He said the Australian economy remains resilient and spending is picking up following the Omicron variant setback.
Such resilience is evident in the labour market where the unemployment rate is at a 14-year low of 4.2 per cent and is expected to fall below four per cent later this year.
While inflation has picked up more quickly than the RBA had expected, it remains lower than in many other countries.
He said the board is committed to maintaining highly supportive monetary conditions to achieve its objectives of a return to full employment in Australia and inflation consistent with the two to three per cent target.
"While inflation has picked up, it is too early to conclude that it is sustainably within the target range," Dr Lowe said.
"There are uncertainties about how persistent the pick-up in inflation will be given recent developments in global energy markets and ongoing supply-side problems."
At the same time, wages growth remains modest and it is likely to be some time yet before growth in labour costs is at a rate consistent with inflation being sustainably at target.
"The board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve."
