When the Reserve Bank held its cash rate at 3 per cent on March 5 it said that quiescent inflation and slightly sub-par economic growth gave it room to cut again if necessary. On Tuesday, when it left the cash rate alone again, it said the same thing.
It is maintaining what JPMorgan economist Stephen Walters a week ago called a "tactical pause" when he maintained his prediction that rates would be cut one more time to 2.75 per cent, but pushed his estimated timing out from May to November.
It's a tactical pause because the Reserve is dealing with a strong Australian dollar, and won't signal that it is done with rate cuts until it is confident that there's accelerating growth in the part of the economy hurt most by the dollar's strength, and by interest rates that stayed relatively high to contain inflation when the resources boom was raging.
It also wants to keep an eye on Europe, but unless there is major deterioration there the local sea change is its first priority. Another rate cut isn't guaranteed - but the Reserve wants it known that one is on the cards if the baton-pass from the resources sector to the industrial economy is fumbled.
There's a hat-tip in the direction of the drama around the rescue of Cyprus in the latest statement: the Reserve's comment in March that financial strains in Europe were "considerably reduced" has been omitted. The central bank says, however, that Europe is showing signs of stabilisation, and it explained why in the Financial Stability Review it released last week.
Developments including the European Central Bank's unused but psychologically powerful Outright Monetary Transactions (OMT) facility and an audit of Spain's banks in September that put the recapitalisation bill at a lower-than-expected €40 billion ($49.2 billion) had helped boost European sovereign debt prices and drive yields and borrowing down "significantly", the central bank said in the review.
Fears of a euro implosion had eased and capital outflows from weaker European countries to Germany and other safe havens had slowed considerably, to the point where money was actually being repatriated to Greece and other peripheral eurozone economies.
Its list of concerns is still long. Even after a renegotiation of Greece's bailout in November there is "considerable doubt" about Greece's ability to meet its fiscal targets. Fiscal austerity could stymie European economic recovery, and the original, abandoned decision to tap insured Cypriot bank deposits to part-fund Cyprus' rescue could raise concerns about the "credibility" of European deposit guarantees, the Reserve said in its review, although European sovereign debt markets have not reacted seismically.
All in all, the euro area still faced significant challenges, and it was "too early to tell whether the improvement in market sentiment is the beginning of a sustained recovery, or merely a temporary upswing", the Reserve said last week. There had been false dawns before, it observed.
The Reserve is, however, a bit more confident now that a baton-pass from the slowing resources sector to the rest of Australia's economy was under way, oiled by the cut in the cash rate from 4.75 per cent to 3 per cent between November 2011 and December last year.
In its March 5 announcement that the cash rate was being held at 3 per cent it said that the peak in resources investment was approaching, and while the near-term outlook for investment outside the resources sector was relatively subdued, recent data suggested "some prospect of a modest increase" in activity in 2013-14.
It said on Tuesday that while the resources slowdown was "drawing close", a modest increase in non-resources activity was "likely to begin over the next year" with more stimulus from already-announced rate cuts "expected to emerge over time".
But the central bank needs to be even more confident before it signals that rate cuts are off the agenda, particularly when the Australian dollar is stubbornly strong. It was up about a quarter of a US cent to $US1.046 early on Tuesday evening after the rates decision.
The size of the stimulus resources investment has delivered makes for a pressing call on the industrial economy to accelerate as the resources boom cools: a premature hawkish signal that sends the $A higher would increase the degree of difficulty.
The stakes are high, and there is time for the Reserve to wait. It will have been on hold for five months when it next meets. CommSec economist Craig James says there was a six-month gap between the last crisis rate cut in 2009 and the first post global crisis rate rise. In 2001-02 there was a five-month gap between the end of the rate cut cycle and the beginning of a rate rise cycle, and the gaps in 1998-99 and 1993-94 were 11 months and 13 months respectively.