The Reserve Bank of Australia has kept its powder dry for a second consecutive month as the global economy improves and previous rate cuts take effect.
The central bank held its cash rate steady on Tuesday, saying the four cuts it made in 2012 were having a positive effect on the local economy.
Economists were unsurprised by the decision, but noted that the RBA was remained willing to cut rates if necessary.
Governor Glenn Stevens said recent data suggested economic growth in Australia was close to trend, helped mainly by an increase in investment in the resources sector.
“Looking ahead, the peak in resource investment is approaching, as it does, there will be more scope for some other areas of demand to strengthen,” he said in a statement after the RBA’s March board meeting.
“Dwelling investment appears to be slowly increasing, with higher dwelling prices and rental yields.”
He said conditions that were dampening global economic growth had also eased, with the United States experiencing a moderate expansion and Europe’s financial woes improving.
CommSec chief economist Craig James said an interest rate cut in March could have hurt confidence in the local economy.
“Interest rates are cut if the economy needs more stimulus or insulation from jitters abroad, and the inflation situation allows it,” he said.
“So a rate cut today would have been a concern.”
Mr James said the decision to keep rates on hold was not a surprise because of the recent raft of good economic news.
“The Aussie dollar has eased, home prices have risen, job ads are recovering, sharemarkets have trended higher and retail spending rose in January while retailers are reporting better sales for February,” he said.
Mortgage Choice head of corporate affairs Belinda Williamson welcomed the RBA’s decision.
“We are seeing encouraging signs in the economy that should lead to further positive consumer and business sentiment,” she said.
“For a start, home loan interest rates are at historic lows, and any future cuts will be icing on the cake for existing borrowers and those looking to get into the property market.”
JP Morgan economist Tom Kennedy said the RBA’s statement indicated its view of the economy hadn’t changed since its February meeting.
“All in all, this statement basically says that the economy is a little bit soft but it is doing okay,” he said.
Mr Kennedy said the RBA made it clear it was willing to cut the cash rate if needed.
“I think that really is the key,” he said.
“If we do see a notable deterioration in the (economic) data, I think the RBA would be willing to step in and provide a more accommodative stance of policy,” he said.
Most economists still expect the RBA to cut rates at some stage in 2013.
