Predictions about an end to the Reserve Bank's easing cycle in the past two months have reversed in recent weeks, as continued soft economic data points to an increased chance the central bank could lower rates for the first time this year.
The case for an interest rate cut next Tuesday was boosted by continued weakness in private sector credit growth, according to figures released by the Reserve Bank.
Financial markets are pricing in a 41 per cent chance of a rate cut, the highest expectation since the RBA's decision in February to keep rates at 3 per cent.
The markets are also pricing in at least 50 basis points of cuts by the end of the year.
Private sector credit edged higher by 0.2 per cent in March, continuing a similar rise the month before and bringing growth over the past year to 3.2 per cent. The soft growth represented a "prolonged state of weakness" since the financial crisis, Westpac senior economist Andrew Hanlan said.
Business credit remained flat after falling 0.2 per cent in February, and increased 2.6 per cent over the past year. Housing credit performed the strongest, rising 0.4 per cent last month after a 0.4 per cent increase in February.
The tepid growth reflected continuing consumer and business caution about borrowing and spending, analysts said. At the same time, households and corporates maintained their preference for saving and stronger balance sheets.
"All components of credit are showing no sign of accelerating out of the range they have been in for the past six months or so," Citi economists Paul Brennan and Josh Williamson said, adding that they expected a 25 basis points rate cut in May or June.
Meanwhile, the National Australia Bank's quarterly ASX 300 business survey found conditions remained stable last month, in contrast to a minus-7 reading on NAB's wider quarterly business survey.
While the finance, business and property sector strengthened, retail and manufacturing weakened, the survey found.
A separate survey by credit data research group Veda released on Wednesday found that business credit demand slowed for the second consecutive quarter, the first time since 2010.
Rate cut expectations were bolstered by a lower-than-expected inflation rate in the first three months of the year and the highest unemployment rate since 2009 in March.
JPMorgan economist Ben Jarman said the Reserve was more likely to consider a rate cut at its June meeting after the release of April employment figures next Thursday and private capital expenditure expectation numbers on May 30.