RBA's rate unchanged as economy improves

THE Reserve Bank of Australia has kept the cash rate at 2.5 per cent, amid signs that the local economy is starting to improve.

The decision was expected, after RBA governor Glenn Stevens said a month ago that the board would not be changing the rate anytime soon, which he reiterated after the March meeting.

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

Mr Stevens said that consumer demand is getting slightly better and is there are signs that the housing construction sector is improving.

"Some indicators of business conditions and confidence have shown improvement and exports are rising," he said in a statement.

"At the same time, resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative."

The RBA governor expects the unemployment rate to rise, but the overall economic picture looks encouraging.

"Over time, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate," Mr Stevens said.

HSBC Australia chief economist Paul Bloxham said Mr Stevens' statement showed the RBA planned to keep the cash rate on hold for some time.

"There are no hints here that the RBA is considering cutting interest rates further and we think the RBA's easing phase is done," he said.

He said the RBA had also toned down its rhetoric on the Australian dollar, which it regularly described as "uncomfortably high" during 2013.

That suggested the central bank was no longer trying to push the currency lower.

"We think their concerted campaign to jawbone the Aussie dollar lower is over," Mr Bloxham said.

The Australian dollar fell more than a quarter of a US cent after the RBA's announcement.

That may be because it looks like the bank will embark on another round of talking down the currency, Westpac chief currency strategist Robert Rennie said.

"The RBA used the words the currency 'remains high by historical standards'" he said.

"So the foreign exchange market, I assume, is thinking that is potentially the beginning on the part of the RBA to encourage a weaker currency and therefore improve the rebalancing of growth in Australia."

Mr Rennie said the RBA looks fairly confident about the local economy.

"The use of the words 'appropriately configured' when you're talking about monetary policy makes it very obvious that is the case," he said.

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