Expectations of a Reserve Bank interest rate cut in early 2015 have sunk on an optimistic assessment of the local and global economy by governor Glenn Stevens.
Although disappointing September quarter economic growth figures shocked the market and sparked a rate cut debate, Mr Stevens has told the Australian Financial Review the economy was tracking largely as the central bank had expected it to.
He said keeping rates on hold - as they have been since August 2013 - was aimed at creating stability and predictability to encourage confidence.
Mr Stevens didn't rule out further cuts, though, saying lower rates would still have a stimulatory effect on the economy.
Westpac, one of two of the big banks that recently forecast two rate cuts in 2015, now admits its new forecasts look shaky.
Chief economist Bill Evans said the futures market has cut the chance of a rate cut in February from 40 per cent to 16 per cent following Mr Stephens' comments.
"At this stage, we are comfortable to retain our recent call for two cuts in February and March while recognising that the exact timing has had a significant jolt from the governor's interview," he said.
"Like the governor we will take a fresh look at all these things in the new year while maintaining that the appropriate policy is to cut rates early in that new year."
Mr Stevens also caused a fall in the Australian dollar by saying it could do more to help the economy by continuing to drop.
"A year ago, I said probably 85 US cents was better than 95 and if I had to pick a figure now, I would say probably 75 is better than 85," Mr Stevens said.
The Australian dollar dived to 82.15 US cents soon after the publication of Mr Stevens' comments, its lowest point since June 2010.
It recovered some ground to be worth 82.75 US cents late on Friday.
ANZ senior economist Felicity Emmett said the RBA would clearly prefer the Australian dollar to do more of the heavy lifting for the economy, rather than rates.
"Mr Stevens' interview makes us more comfortable with our view that the RBA clearly would prefer a substantially lower exchange rate to lower interest rates," she said.
"While it hasn't closed off the possibility of a rate cut, at the moment it seems less than convinced that a lower cash rate would assist the recovery."
Citi economists Josh Williamson and Paul Brennan expect economic growth to improve in the December quarter, and for rates to remain on hold in 2015.
"We continue to expect growth of around three per cent next year, slightly better than this year, and with growth picking up during the course of the year as the upswing in housing activity filters more broadly through the economy, assisted by expected further falls in the Australian dollar," they said.
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