By Peter Martin
In deciding to keep interest rates unchanged for the third straight month the Reserve Bank board has shown itself to be optimistic about economic recovery, declaring the global economy to be "stabilising" and growth in our biggest customer, China, to be considerably stronger.
The Bank's statement says downside global risks have "diminished," and that a resurgence of growth in China is having "an impact on other economies including Australia".
Domestic economic conditions "have not been as weak as expected a few months ago," demand for housing credit is picking up, and Australian house prices are "tending to rise".
Offsetting the rosy picture is business borrowing, which has been falling "as companies postpone investment plans and seek to reduce leverage in an environment of tighter lending standards".
But the Bank says "large firms have had good access to equity capital" and that market and mortgage rates are at very low levels by historical standards, despite recent increases with business loan rates are below average.
In an explicit acknowledgment that government stimulus measures are helping prop up the economy, the RBA credits both "fiscal measures" and lower interest rates with Australia's economic resilience.
While low wage and price growth give it "some scope for further easing of monetary policy, if needed," for the moment it is happy to keep its cash rate at 3 per cent - its lowest level in 48 years.
In a phase that will be interpreted as providing hope that it might cut rates one last time in the current cycle, it says "in assessing how it might use that scope, the Board will continue to monitor how economic and financial conditions unfold and how they impinge on prospects for a sustainable recovery in economic activity".
The more important implication is that it is giving no thought to increasing interest rates quickly as the economic recovery it foresees takes hold.
That's good news for Australians yet to be as convinced as the Bank that things are about to turn up.