The central bank cited an improvement in the European sovereign debt crisis and a continuing moderate expansion in the United States after a soft patch in mid-2011 as the reasoning behind the decision at its first board meeting of the year.

The RBA had been widely expected to cut interest rates for the third time since November at its February board meeting yesterday.

Thirteen out of 14 economists surveyed before the decision forecast a quarter-of-a-percentage point cut to bring the cash rate to 4 per cent, amid ongoing pessimism about Europe's debt crisis.

Commonwealth Bank chief economist Michael Blythe said the decision to hold rates steady had come as a surprise to economists and markets.

``The Reserve Bank has an infinite capacity to surprise and today was no exception,'' he said.

Mr Blythe said it appeared the combination of improved US economic data, positive signs from Europe and the stabilisation of markets had convinced the RBA to hold rates for now.

He said a rate cut could come as early as March if Europe's debt crisis took a turn for the worse.

The RBA cut its benchmark interest rate in November and December, taking it from 4.75 to 4.25 per cent to protect against flow-on effects from the European debt crisis.