Growth to slow but rate cut unlikely

Research from Westpac and the Melbourne Institute indicates the economy will weaken in the coming months.

Australia is heading for below trend economic growth in the second half of 2016, but that won't necessarily trigger a rate cut.

The Westpac/Melbourne Institute Leading Index of Economic Activity fell 0.12 points to 96.59 in March, signalling weaker economic growth in the coming months.

It's the second consecutive decline for the index, which indicates the likely pace of economic activity three to nine months into the future.

"The Leading Index continues to point to a material loss of momentum and growth pulling back to below trend rates through the middle of the year," Westpac Senior economist Matthew Hassan said.

The main factors weighing on the index were commodity prices, weaker US industrial production and a decline in average monthly hours worked domestically.

Mr Hassan said some of those factors, like the rising local dollar and moves in commodity prices, would likely only be temporary.

But the index still points to challenging conditions in the near term, he said.

The Reserve Bank of Australia would likely continue to hold an easing bias as well, Mr Hassan said, even though he does not expect a cut to the cash rate any time soon.

That's because the RBA board seems content that the economy's strong performance in the second half of 2015 had continued into 2016.

"Although there are significant risks around the outlook we remain comfortable retaining our call that interest rates will remain on hold for the rest of 2016," Mr Hassan said.