Building approvals rose for the first time in eight months in February, defying market expectations and fuelling speculation the central bank may leave interest rates unchanged for another month.

Australian building approvals rose a seasonally adjusted 7.8 per cent to 10,050 units, following a four per cent fall in January, the Australian Bureau of Statistics (ABS) said on Wednesday.

Financial markets had expected a more modest 1.5 per cent gain, but approvals surged on the back a turnaround in the apartments, townhouses and villas sector.

The other dwellings approvals segment rose 34.1 per cent to 2,726 units, after falling 17 per cent fall in January.

But overall, total building approvals were still down 25.5 per cent in the year to February.

ICAP senior economist Adam Carr said the month-to-month jump in approvals indicated the federal government’s fiscal stimulus measures were working.

It also inferred the Reserve Bank of Australia (RBA) might hold off on cutting the cash interest rate at its next board meeting on April 7.

“Rates have been cut, lending is rising strongly (so) approvals should pick-up. On the balance of probabilities then it is more likely they’ll continue to rise,” he said.

“So notwithstanding the fact that approvals were skewed toward apartments - which are volatile - I am looking more at that jump in approvals as an indicator that policy stimulus is working.

“So for the RBA, I wouldn’t say the data adds to the case to cut further.

“In fact, given the mixed signals it highlights the wisdom in pausing and allowing more time to assess.”

nabCapital senior markets economist David de Garis said the increase in the other dwellings segement was the primary driver for the overall rise in February approvals.

“All of the rise in building approvals was in the apartment sector, which has been very volatile,” he said.

“I would not read too much into that as it is month-to-month and the demand in that sector still is moribund.”

The central bank has cut the cash rate by 400 basis points to 3.25 per cent, a 45-year low, between September and February.

Mr de Garis said the RBA was likely to leave the cash rate at 3.25 per cent for the second consecutive month when its board meets next Tuesday.

“They are probably going to leave rates on hold next week,” he said.

“They have done the heavy lifting so far and it is going to be incremental from here on in.”

Westpac said the better than expected building approvals data signalled an improvement in sentiment, even though approvals for private sector houses were up only 0.1 per cent, compared to a 1.2 per cent jump in January.

“That said, the bounce in private sector apartment approvals does suggest some of the hit from the credit crunch on investor demand and via constraints on developer finance, may be starting to end,” Westpac said.

AAP