The Reserve Bank is increasingly certain the economy is picking up and increasingly determined not to cut its cash rate again.
The statement released by Reserve Bank governor Philip Lowe after Tuesday's board meeting says the global economy improved further since the February meeting when he said both business and consumer confidence had picked up.
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Rates on hold for foreseeable future
The Reserve Bank leaves the cash rate at 1.5 per cent - and Peter Martin says interest rates are not about to change anytime soon.
"Above-trend growth is expected in a number of advanced economies," he says.
"The improvement in the global economy has contributed to higher commodity prices, which are providing a significant boost to Australia's national income.
![The RBA governor Philip Lowe](/web/20170310000709im_/http://www.theage.com.au/content/dam/images/g/u/a/f/u/v/image.related.articleLeadwide.620x349.gust4x.png/1488964896698.jpg)
"Most measures of business and consumer confidence are at, or above, average. Consumption growth was stronger towards the end of the year, although growth in household income remains low."
Although the unemployment rate had stayed steady at around 5.75 per cent, the employment growth had been concentrated in part-time jobs.
With growth in labour costs "subdued", underlying inflation was likely to stay low "for some time".
The Bank remains very concerned about household debt which is growing at 6 to 7 per cent per year while household incomes grow at 3 per cent.
Unlike outside observers such as the OECD it isn't expecting that growth to end to with a slump in home prices, but it is expecting it to increasingly constrain consumption. It believes that cutting interest rates again would encourage further borrowing, pushing up house prices and borrowing further, making the eventual contraction more severe.
Signs of frustration
In the statement Dr Lowe expresses frustration with Australia's banks some of whom are chasing profits by lending more generously to housing investors after at first tightening standards in accordance with directions from the Australian Prudential Regulation Authority.
Describing the present 1.5 per cent cash rate as "low" Dr Lowe said it continued to support the economy.
"Financial institutions remain in a good position to lend," he said.
Financial institutions remain in a good position to lend
Philip Lowe
"The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom."
While an appreciating exchange rate would "complicate" the transition, likely increases in US rates would make that unlikely and would provide some 'cover' should the Reserve Bank decide to push up rates.
Financial markets now regard a rate hike as more likely than a rate cut, with futures prices implying a 100 per cent probability of an increase in the cash rate to 1.75 per cent by June 2018.
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