The Reserve Bank of Australia (RBA) appears content to leave the cash interest rate steady for some time but it would cut if circumstances deteriorate, economists say.

In the minutes from the central bank’s board June 2 meeting released today, the RBA said there was no urgency to cut the overnight cash rate due to further signs of improvement in the economies of Australia and those offshore.

The RBA left the cash rate unchanged at a 49-year low of three per cent for the second consecutive month on June 2.

“Board members did not see a pressing case for any further action at this meeting, though they viewed the inflation outlook as affording scope for further easing of monetary policy, if that were to be needed to support demand at a later stage,” the board said in its June meeting minutes.

Westpac Banking Group chief economist Bill Evans said the RBA was likely to leave rates on hold for the next few months, but had room to move if “unforeseen developments emerge”.

“The tone of these minutes suggests that the bank (RBA) does not expect to have to cut rates again but emphasises that probably, unlike the other developed economies, still has adequate flexibility to respond to unexpected developments such as the expected moderate recovery not arriving, or some additional shock offshore,” Mr Evans said.

RBA board members noted that historical low interest rates and the boost to government spending, which “represented the largest macroeconomic policy stimulus over recent decades” were filtering through the economy slowly.

Between last September and April this year the central bank cut the cash rate by 4.25 percentage points to revive the economy.

In addition, the federal government has implemented two stimulus packages worth a total $52 billion.

“Monetary policy had been eased significantly and budgetary measures were also providing significant support to demand,” the minutes said.

“Indications were that these policies were having some impact, though the full effects would take time yet to be seen.”

RBC Capital Market senior economist Su-Lin Ong said the RBA board reaffirmed the global economy was steadying after very weak December and March quarters.

“Importantly, the RBA continued to remain positive with regards to Asia/China with members noting the `strong recovery in Chinese industrial production and the pick-up in production in a number of east Asian economies, including Japan’”, Ms Ong said.

Ms Ong said while the minutes alluded to the RBA leaving rates on hold for an extended period, she forecast the central bank had ended its current cycle of easing.

However, debt futures markets were still pricing around a 60 per cent chance of the RBA cutting the cash rate by 25 basis points to 2.75 per cent by September.

JP Morgan economist Helen Kevans expects the RBA to cut once, by 25 basis points, in the second half of 2009 as the unemployment rate rises from a current 5.7 per cent.

“For one, from a political perspective, it will be difficult for the RBA to sit on its hands as the unemployment rate soars,” Ms Kevans said.

“By year-end, we forecast an unemployment rate with a seven per cent-handle.

“And, two, RBA officials may, in a tactical move, lower the cash rate in a bid to prevent further hikes in domestic banks variable mortgage rates.”

AAP