The Reserve Bank has left the cash rate at a record low of 2.5 per cent for the ninth consecutive month, but hinted at the possibility that the unemployment rate has already peaked in the current economic cycle.
The decision to stay on the sidelines was widely expected by economists and financial markets.
"In the board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target," RBA governor Glenn Stevens said in the statement following the RBA's board meeting on Tuesday afternoon.
"On present indications, the most prudent course is likely to be a period of stability in interest rates."
The Australian dollar jumped just under a quarter of a cent to US93.17¢, matching its highest level this month, even though the statement was almost identical to the April board statement.
"The RBA is broadly happy with how the economy is improving and further gains are expected over time," Moody's Analytics associate economist Katrina Ell said.
"Rate hikes won't be considered until the unemployment rate heads lower."
RBA relieved at improvement in jobs market
The key change in commentary from the Reserve Bank was on wages and unemployment. The central bank sounded a more optimistic note on the jobs market, replacing its previous comments that the unemployment rate would "edge higher" to "risen somewhat".
The central bank added a new line noting that "more recently, there has been some improvement in indicators for the labour market, but it will probably be some time yet before unemployment declines consistently".
Barclays' chief economist for Australia Kieran Davies said the RBA would be pleased to see the slight improvement in the employment market according to figures from the Bureau of Statistics.
"I think they are relieved that the weakness in wages is coming through in the inflation numbers, but at the same time, the labour market is brighter than what they anticipated," Mr Davies said.
Despite the slightly more positive tone from the Reserve Bank on the jobs front, financial markets did not increase their expectations of an rate hike over the next year.
Markets priced in a 48 per cent chance of a 25 basis points rate hike over the next 12 months, which was below the 60 per cent chance they had priced in on Wednesday morning.
Mr Davies said the Reserve Bank would be keeping a close eye on consumer confidence after a survey pointed to a sharp dive over the past two weeks on the back of budget cut fears.
"They'll get a better sense of whether that's feeding through into spending when they talk each month to the retailers," he said.
Softer inflation gives RBA some breathing room
Economists said the softer-than-expected reading of first-quarter inflation, which kept the rise in consumer prices within the RBA's target band of 2 to 3 per cent, had given the central bank some breathing room on when it might consider lifting the cash rate.
At the same time, analysts have said that expectations of a tight federal budget could see the Reserve Bank maintain its loose monetary policy settings and leave rates at 2.5 per cent for an extended period to continue stimulating the economy.
The unchanged rate came despite further signs of a gradual improvement in the economy as it transitions away from mining-led growth.
The latest ANZ survey on job advertisements, which was released on Monday and comes ahead of the Bureau of Statistics' April labour market report on Thursday, saw advertised positions in newspapers and online rise for the fourth consecutive month.
Economists said while it was still too early to call an end to a rise in the unemployment rate, the latest figures pointed a gradual improvement in the jobs market.
At the same time, analysts said while a 3.5 per cent fall in building approvals for March could signal a forthcoming slowdown in the housing boom, the outlook for the sector remained strong.