The Reserve Bank has strengthened its position on holding a period of stability for interest rates, saying that "the cash rate could remain at its current level for some time if the economy was to evolve broadly as expected".
The central bank, which switched to a neutral monetary policy stance in last month, said in its March board meeting minutes that "developments since the previous meeting had supported that assessment" of an unchanged cash rate.
"There were further signs that low interest rates were providing support to activity, with improved economic conditions evident across a range of household and business indicators," the RBA said in the minutes, which were published this morning.
The Australian dollar surged by a quarter of a cent. The local currency, which was trading at US90.93¢, rose as high as US91.10¢ after the minutes were released. It slipped back and was fetching US90.74¢ about 12.50pm.
"There's definitely no urgency [from the RBA] at the moment in feeling behind the curve on the transition that the economy is going through," JP Morgan economist Ben Jarman said.
"Growth is sub-trend and the labour market is still soft, but there is this faith that rates are now low enough and you are starting to see these preliminary signs of the usual types of traction from that."
The Reserve Bank also raised the prospect of macroprudential tools, which have been used by other countries to slow down a housing sector that is overheating, in a further signal that interest rates could remain unchanged even if the property market continues to grow strongly.
"If the bank uses macroprudential policy, it makes it less likely that they will need to raise rates," said UBS interest rate strategist Matthew Johnson.
"So it really extends that period of stability in interest rates. So they'll be able to slow the housing market down without having to tighten policy."
The RBA added that its forecasts had already factored in a sharp decline in mining investment in the next financial year, as reflected in the recently released capital expenditure intentions survey.
The board minutes came as Macquarie Bank pared back its bearish outlook on interest rates. The bank said it now only expected one 25 basis points rate cut this year that would take place in the third-quarter.
Macquarie had previously forecast rates to fall by 25 basis points in the second-quarter and by another 25 basis points in the third-quarter to take the cash rate to 2 per cent.
The revision was on the heels of a turnaround by Westpac's chief economist Bill Evans, who on Monday dropped his two interest rate cuts expectations this year. Mr Evans now expects rates to remain on hold at 2.5 per cent until the third-quarter of next year.
Mr Evans said today that Westpac's had changed its rate outlook "partly ... because of the considerable comfort that the Board clearly holds with the current policy stance".
"The bank is setting a very high hurdle for any further policy stimulus," Mr Evans said in a note.
"While we still see a number of the headwinds for employment; the consumer; business investment and confidence restraining the pace of recovery we do not expect the type of growth profile emerging over the course of the next 12 months that would shock the bank out of its current comfort zone."
more to come