The Reserve Bank has left interest rates on hold at 3 per cent, amid some signs of economic improvement.

Only two out of 29 economists surveyed by Bloomberg expected a rate cut, meaning the RBA’s decision to keep rates steady had little effect on financial markets.

Although, the Australian dollar drifted higher from around 102 US cents to 102.3 US cents as traders thought the Reserve Bank governor’s post-meeting statement was a little more positive than previous ones.

In his statement, Glenn Stevens reiterated that the bank still had scope to lower rates further.

“The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand,” the RBA governor noted.

“At today’s meeting, taking into account the flow of recent information and noting that there had been a substantial easing of policy as a result of previous decisions, the board judged that it was prudent to leave the cash rate unchanged.”

The flow of recent information referred to by Mr Stevens included signs that the US economy is experiencing a modest expansion, a reduced threat of European financial catastrophe, and a rebound in Chinese economic growth, leaving commodity prices stable over recent months at “reasonably high levels.”

It also included early signs that Australian consumers are starting to spend more and that the housing sector is improving, although Mr Stevens was careful to warn against expectations of the kind of growth seen before the financial crisis.

“Present indications are that moderate growth in private consumption spending is occurring, though a return to the very strong growth of some years ago is unlikely,” he observed.

“The near-term outlook for non-residential building investment, and investment generally outside the resources sector, is relatively subdued, though recent data suggest some prospect of a modest increase during next financial year. Dwelling investment appears to be slowly increasing, with higher dwelling prices and rental yields.”

‘Watch and wait’

Most economists say little has changed in the Reserve Bank’s latest statement, with the majority still expecting at least one more rate cut this year.

“It’s almost identical to the February statement. It appears that the RBA is still in its watch and wait mode, patiently awaiting the pickup in housing and construction indicators to come through,” Macquarie senior economist Brian Redican told Reuters.

“We think the Reserve Bank will still have to cut rates, it’s a question of when that trigger will emerge … It could be as early as April.”

However, a growing number of economists say rates may have reached their low point if domestic economic conditions continue their tentative modest improvement.

“They stand ready to act and have the ability to act if necessary, but clearly the case isn’t there at the moment and it’s up to the data flow to make that case,” the Commonwealth Bank’s chief economist, Michael Blythe, told Reuters.

The decision not to cut the cash rate target means the major banks’ standard variable mortgage rates are likely to stay around 6.45 per cent, with discount rates around 5.65 per cent, unless financial institutions choose to move their rates out of cycle with the RBA.

By online business reporter Michael Janda

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