The Reserve Bank of Australia has kept the official interest rate on hold at 2.25 per cent despite lacklustre economic conditions and a stubbornly high Australian dollar.

This is the second month in a row that the RBA has kept rates on hold, following the last rate cut in February.

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In explaining its decision, the RBA governor Glenn Stevens said: “At today’s meeting the Board judged that it was appropriate to hold interest rates steady for the time being.

“Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will continue to assess the case for such action at forthcoming meetings.”

Mr Stevens highlighted the danger of increasing house prices in Sydney, saying the RBA was “working with other regulators to assess and contain risks that may arise from the housing market.”

Overall, Mr Stevens’ tone was downbeat, projecting that the economy is “likely to be operating with a degree of spare capacity for some time yet.” He pointed to a decrease in business investment, an overvalued dollar and rising unemployment.

However, in one piece of good news, he said that lending to businesses has picked up recently.

Within 10 minutes of the announcement, the Australian dollar had risen by almost 0.8 US cents, while the ASX 200 immediately plummeted by 40 points.

The decision will come as a surprise to currency traders. According the ASX RBA rate indicator, 75 per cent of currency traders were expecting the RBA to cut the rate to 2 per cent.

However, it will not come as a surprise to many economists. According to a survey of 42 economists by finder.com.au, the vast majority expected the RBA to keep rates on hold this month. The majority believe a rate cut will come by June.