Reserve Bank leaves rates on hold in February

Current housing prices also supported the case of keeping the cash rate on hold, according to Pimco co-head of Asia-Pacific portfolio management Robert Mead.

Governor Philip Lowe and his board kept the cash rate at 1.5 percent Tuesday as forecast by 27 of 28 economists - one predicted a cut.

The Australian dollar lifted to US76.62¢, from around US76.40¢ just before the announcement, as markets widened the odds on another policy easing.

Overall, the economy is continuing its transition following the end of the mining investment boom.

Although the unemployment rate has moved a little higher recently, the forward-looking indicators point to continued expansion in employment over the period ahead, the bank noted.

"Australian house prices have been so strong, and the impact from lowering rates further, if it was deemed to be having an impact on pushing house prices higher, would be an unsavoury thing for the RBA to do", he said.

Dr Lowe said there variable housing markets with some markets "risking briskly" while in others they were falling. "Growth in rents is the slowest for a couple of decades", he said.

"With leverage increasing, supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments", Lowe said. The acceleration highlights that housing market conditions have rebounded in line with the previous rate cuts and the consistent rise in investor participation.

Analysts expect that windfall to percolate through profits, wages and tax receipts in a boon for nominal growth and an argument against further rate cuts.

ANZ Research senior economist Felicity Emmett said she expected rates to remain on hold for some time given persistently low domestic inflation.

The central bank releases a quarterly update of its growth and inflation forecasts Friday.

The Aussie rose as high as US$0.7675 after the RBA decision.

The Reserve Bank of Australia slashed rates 300 basis points between November 2011 and August a year ago to support non-resources industries as the economy transitions out of a mining investment boom.

  • Wendy Palmer