Rates to stay on hold for longer: RBA

Interest rates look set to remain around the same levels for an extended period of time, after the Reserve Bank flagged "a period of stability" in monetary policy and kept the cash rate on hold at its first meeting of the year today.

The central bank has also dropped its comments about the Australian dollar being "still uncomfortably high", noting instead that the "exchange rate has declined further, which, if sustained, will assist in achieving balanced growth in the economy".

"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 a statement.

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

Easing cycle could be over

Economists said the RBA appeared to have shifted towards a neutral monetary policy stance, dropping its easing bias.

"They've clearly moved towards a more neutral stance of monetary policy and it's going to really put the burden on the data over the next few months if we are going to see the RBA ease policy any further," JP Morgan economist Tom Kennedy said.

The cash rate, already at a record low of 2.5 per cent, has not been changed by the central bank since August last year.

The Australian dollar rose from US87.60¢ to US88.27¢ after the RBA's statement was released.

"The RBA is comfortable with the medium-term economic outlook," Moody's Analytics associate economist Katrina Ell said.

"The RBA expects a ‘period of stability’ in interest rates, further confirmation the easing cycle is over. The lower exchange rate, coupled with improvements in consumer and business demand will lift growth ahead."

Jawbone dropped

The central bank, which had been aggressively talking down the Australian dollar since October last year, was noticeably silent about the need for a weaker exchange rate in its statement.

"They've just said that it is now closing to levels that would support balanced growth in the Australian economy," Mr Kennedy said.

"Again, that is quite a big change from December, although perhaps that's not overly surprising, given that the Aussie dollar is about 3 per cent below where it was when the board met in December."

Westpac senior currency strategist Sean Callow said the Reserve Bank "took some risk" in changing its commentary about the local dollar, but "might have cannily judged that emerging market jitters will help reduce the danger that its switch to neutral language on Australian dollar would stoke a steep rally".

"Overall the statement is a notable positive for [Australian-US dollar cross rate] which should be reinforced in Friday's Statement on Monetary Policy."

The decision to keep the official cash rate unchanged was widely expected by economists, who said the unexpected rise in consumer prices in the last quarter of 2013, coupled with strong growth in the housing market, meant it would be unlikely that the RBA would ease monetary policy again today.

The central bank's meeting came after a raft of data released on Monday pointed to the mixed outlook facing the Australian economy.

Sydney and Melbourne remained among the key drivers of house prices, with prices across the eight capital cities rising 1.2 per cent in January, after the 9.8 per cent jump last year.

Building approvals retreated slightly in December, but remained above 16,000, a level it has maintained for four months and which is the strongest growth since the measure started two decades ago.

At the same time, ANZ's job advertisements survey for January reflected the softness in the labour market, with ads continuing to fall, although at a slower pace.

Australian manufacturers continued to struggle. The latest round of PMI data from the Australian Industry Group found that conditions in the sector remained soft. Meanwhile, inflation eased in January after a spike in December, according to a TD Securities-Melbourne Institute gauge.


Glenn Stevens. Picture: ALEX ELLINGHAUSEN

Glenn Stevens. Picture: ALEX ELLINGHAUSEN