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RBA playing wait and see on cash rate

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AAP

2013-02-19

The minutes of the central bank's February board meeting struck a positive tone about the local economy.

The Reserve Bank of Australia (RBA) kept the cash rate at three per cent at its first meeting of the year, after cutting it by a quarter of a percentage point at the previous meeting in December.

The February 5 minutes, released on Tuesday, indicated the RBA was waiting to see how recent interest rate cuts would flow through the economy before deciding if it needs to cut the cash rate further in 2013.

"Interest rate-sensitive parts of the economy had shown some signs of responding to these lower interest rates, which were well below their longer-run averages, and further effects could be expected over time," the RBA minutes said.

Commsec economist Savanth Sebastian said the minutes suggested the RBA expected the domestic economy to improve over the next few months.

"It essentially confirmed their view that they are happy to wait on the sidelines and are relatively upbeat about the domestic economy," he said.

"They highlighted that interest rate-sensitive parts if the economy are starting to gain a bit of traction given the low interest rate environment so that certainly seems to suggest that, over the next couple of months, they are expecting an improvement to take place."

Mr Sebastian said that while one further quarter of a percentage point rate cut was a possibility, he expected the RBA to keep the cash rate on hold throughout 2013.

But, he said, while the RBA appeared to be confident economic conditions were improving in China and the US, it remained concerned about the risk of further weakening in the euro zone.