Reserve Bank might put rates on hold for the rest of the year

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Thanks to favourable business conditions, it is highly possible that the Reserve Bank will hold rates this year. According to the National Australia Bank's latest Monthly Business Survey, overall business conditions rose from +8.0 to +12 points this March – way above the long-run average of +5.0. It is currently at its highest level since 2008.

"The lift in business conditions to these levels not only suggests that Australia is withstanding the uncertainty offshore, but that the recovery in the non-mining sectors of the economy has in fact stepped up a gear this month," said Alan Oster, NAB chief economist.

Similarly, business confidence increased from +3 points last February to +6 index points in March, providing assurance that gains will continue to be sustained.

"Tighter capacity, good profitability, and improving confidence levels all raise the prospects for a ramping up of business spending and employment ahead," Oster said.

ANZ economists supported this view and said that the federal election is not expected to dampen the momentum. "While consumers remain cautious given the backdrop of the forthcoming budget and election, the business sector appears unfazed by these concerns," they said in a statement.

For JP Morgan economist Bar Jarman, this improving outlook also increased the chances for the rates to stay put this year, hence also benefiting the labour market.

"This helps the RBA stay on hold, particularly since, taken at face value, several of these survey readings now flag a clear bias to a lower unemployment rate throughout the year," Jarman said.

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