By James Glynn

SYDNEY--Australia's central bank left interest rates unchanged after a monthly policy meeting Tuesday, marking a full 12 months with rates at record lows, as mining investment cools and the country's currency remains stubbornly strong.

The Reserve Bank of Australia left its cash rate target steady at 2.5% saying the outlook for the economy remains challenging.

"Resources sector investment spending is starting to decline significantly," RBA Governor Glenn Stevens said. "Signs of improvement in investment intentions in some other sectors are emerging, but these plans remain tentative."

Mr. Stevens, who recently described the Australian dollar as overvalued, said the currency's continued strength remains a headwind for exporters, especially those outside of mining.

"The exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy," Mr. Stevens said.

Mr. Stevens continued to point to a lengthy period ahead with rates held low.

"On present indications, the most prudent course is likely to be a period of stability in interest rates," he said.

Futures-market pricing shows that traders expect the RBA to hold interest rates low for at least another year as a rebalancing of growth in favor of the non-mining economy is slow to emerge.

The Australian dollar was slightly higher after the statement, trading at US$0.9334, compared with US$0.9322 just before the statement.

Earlier Tuesday, government data showed Australia posted a third straight monthly trade deficit, reflectingsharp falls in prices for its major exports of iron ore and coal in 2014.

The June trade deficit was 1.68 billion Australian dollars (US$1.57 billion) compared with an upwardly revised deficit of A$2.04 billion in May, the Australian Bureau of Statistics said. Iron-ore prices are currently 29% below levels at the start of January, while coal prices have been dragged down by slowing Chinese demand.

The RBA will publish new economic forecasts Friday, which are expected to show likely sluggish growth over the next 12 months as mining investment boom gathers pace.

Write to James Glynn at james.glynn@wsj.com

(END) Dow Jones Newswires

August 05, 2014 01:49 ET (05:49 GMT)

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