The Reserve Bank decided to raise interest rates in March because the balance of economic data showed the domestic economy was growing close to its speed limit.

The minutes to the Reserve Bank of Australia’s March policy meeting showed the central bank concluding that, while a fiscal crisis in Europe could roil global markets and the economy if not handled properly, it did not see that as the most likely outcome.

It also noted that domestic house prices were rising strongly almost across the board.

On balance, members concluded, “it remained appropriate for interest rates to move gradually towards normal levels, and that it was timely to take another step in that direction.”

AMP Capital Investors chief economist, Shane Oliver, says he thinks the word gradual means no rate rise in April.

“I get the clear impression that the Reserve Bank is signalling that it’s going to retain this gradual approach and that to me suggests that we’ll have several meetings where absolutely nothing happens,” he told ABC News.

“I think if the Reserve Bank were to raise interest rates in April they might be concerned that that would signal to the market that they’re departing from a gradual approach.”

However, Macquarie’s interest rate strategist, Rory Robertson, says a rate rise in April is as likely as May.

“Some people have grabbed onto the word ‘gradual’ and said well gradual isn’t back-to-back… rate hikes but, in fact, the Reserve Bank used the word gradual in the equivalent minutes in November, when it was just about to deliver a third consecutive rate hike in December,” he told ABC News.

“I think that the market in general is starting to think that the cash rate might be 5 per cent by the end of the year, versus 4 per cent now.

“We’re in March now, so there’s nine more meetings before the end of the year – the market has in mind there might be four more cash rate hikes – so it’s almost a 50-50 chance at any particular meeting.”

Housing, Greece concerns

The Reserve Bank indicated that it is still concerned by the strength of inflation in home prices.

“While housing loan approvals had slowed a little, house prices had gained significant momentum and were continuing to rise strongly for all but the bottom segment of the market,” the board concluded.

The RBA had raised interest rates by 25 basis points to 4.0 per cent in March, marking the fourth time it had tightened policy since October when rates were at a record low of 3.0 per cent.

The moves render Australian rates the highest in the developed world, and underscore the resilience in Australia’s economy.

Australia had survived the world economic crisis relatively unscathed owing to a buoyant property market, a healthy bank sector and strong Chinese demand for its commodity exports.

“Indeed, some recent indicators suggested that growth might already have been running at or close to trend for a few months,” the RBA noted.

Australia’s long-term growth potential is estimated to be around 3.5 per cent, a pace which the RBA expects to see over the next two years.

Healthy consumer spending, a pick-up in housing construction activity, early signs of a recovery in business credit, and a mining boom that should boost the economy over a number of years all underpinned the RBA’s bullish outlook.

On Greece, where a festering fiscal crisis has hammered the euro and dented investors’ demand for riskier assets of late, the RBA noted that the exposure of the global banking sector to Greece were “quite small” in absolute terms.

It said that even for countries with the biggest banking exposure to Greece, the nation only accounted for a small proportion of their total foreign claims.

“The main risk was the possibility of contagion to other sovereigns and perhaps other markets, primarily in the euro area,” the bank noted.

However, the board concluded that it was unlikely this would lead to a renewed bout of turmoil in financial markets.

-Reuters/ABC