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RBA Keeps Rates Steady as Outlook Brightens

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The Reserve Bank of Australia (RBA) kept interest rates on hold on Tuesday, in line with market expectations, saying that global downside risks appear to have eased and previous rate cuts are stimulating the economy.

Last year, the RBA lowered interest rates four times, shaving a total 125 basis points off its benchmark cash rate to a record low of 3 percent, as it battled a weakening labor market and falling prices of key Australian commodity exports.

Since then, non-mining sectors such as housing and retail have picked up while consumer confidence has improved, adding to evidence that the rate cuts are filtering through to the economy.

(Read More: Australia Bets on Housing to Pick Up Mining Slack)

Data released on Tuesday by property consultant RP Data-Rismark also showed that home prices in Australia's major cities rose for the third straight month in March - the best quarterly performance since mid-2010.

"As long as the improvement continues, the RBA is unlikely to cut rates further," Katrina Ell, associate economist at Moody's Analytics told CNBC.

In a statement released on Tuesday, the RBA did say there was scope to ease policy further and it would continue to assess Australia's growth outlook and inflation outcomes.

(Read More: Will Lady Luck Return to Australia This Year?)

All Done?

John Corr, managing partner at Fortitude Capital said there hasn't been much change in the RBA's narrative for some time.

"The RBA likes to do nothing unless there are reasons for them to do something, they'll leave rates where they are and inflation is within their range," Corr said.

A private gauge of Australia's annual inflation slowed to an eight-month low of 2.1 percent in March, according the TD Securities-Melbourne Institute's measure of consumer prices - within the RBA's long term target band of 2 to 3 percent.

(Read More: Australia Inflation Gauge Slows to 8-Month Low)

Paul Bloxham, chief Australia and New Zealand economist at HSBC, adds that the central bank's easing phase is likely done until the fourth quarter of this year.

"Given concerns about the high Australian dollar, it pays the RBA to be dovish. But this does not necessarily mean that they will follow through with cuts. We remain of the view that the easing phase is done," Bloxham said in a note.

The Australian dollar rose slightly following the RBA's monetary policy decision, trading at 1.047 against the U.S. dollar. Australian stocks, meanwhile, were largely unchanged. Markets resumed trade Tuesday after being shut on Monday and Friday for the Easter holidays.

-By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu