The Reserve Bank has left official interest rates on hold as it sticks with its plan for an extended period of rate stability.
In a statement, Reserve Bank governor Glenn Stevens said the official cash rate would stay at an historic low of 2.5 per cent. The bank has now kept the cash rate at 2.5 per cent since August last year.
Markets had expected the Reserve to leave rates steady, with the same markets pricing in the chance of a rate increase by year’s end.
Mr Stevens said current rate settings were right for the economy.
“In the board’s judgment, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target,” he said.
“On present indications, the most prudent course is likely to be a period of stability in interest rates.”
But the governor did signal a key element of the economy is likely to get worse before improving.
Mr Stevens said unemployment would probably edge up.
“The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher,” he said.
“Looking ahead, the Bank expects unemployment to rise further before it peaks.”
The decision follows much stronger than expected dwelling approval figures from the Australian Bureau of Statistics.
Approvals increased by 6.8 per cent in January, led by an 8.3 per cent jump in approvals for stand alone homes.
RP Data’s head of research Tim Lawless said the Reserve should be happy with the lift in the housing sector.
He said there were growing signs of the underlying strength of the housing market.
“Auction clearance rates have consistently been around the high 70 per cent mark since mid-February and mortgage demand, as measured by activity across the RP Data valuation platforms, was at record daily averages during February,” he said.
“As long as mortgage rates remain low we would expect housing market conditions to remain in positive growth territory, at least in trend terms.”