Despite the recent fall in headline inflation to 1.3%, underlying inflation remains within the target range at 2.3%. Meanwhile, the latest unemployment rate is 6.1%, which is down from its recent peak at 6.4%. These conditions suggest that the RBA should hold the policy rate steady at the very low level of 2.25%, with concerns about an overstimulated housing market implying a tightening bias going forward. The recent partial recovery of the Australian dollar largely reflects better external conditions for the export sector. Therefore, the RBA should not lower the policy rate to drive the dollar down.