UPDATE 1 -Australia central bank shuts door on rate cuts, A$ surges

    * RBA says prudent for period of stability for interest 
rates 
    * Tones down call for lower currency, cites inflation risks 
    * Market pares probability of further cut, boosts A$ 
 
    By Wayne Cole 
    SYDNEY, Feb 4 (Reuters) - Australia's central bank kept its 
main cash rate at a record low of 2.5 percent on Tuesday as 
widely expected but surprised some by saying further cuts were 
not in the cards - dropping its bias towards easing policy. 
    The Australian dollar    surged over half a U.S. cent 
after the Reserve Bank of Australia (RBA) also toned down its 
rhetorical campaign for a weaker currency, saying only that a 
recent decline would assist the economy if sustained. 
    "In the Board's judgement, monetary policy is appropriately 
configured to foster sustainable growth in demand and inflation 
outcomes consistent with the target," RBA Governor Glenn Stevens 
said in a brief statement. 
    "On present indications, the most prudent course is likely 
to be a period of stability in interest rates." 
    It had previously stated that it remained open to the 
possibility of another cut if needed. However, signs of an 
improving economy combined with a surprisingly high inflation 
reading last quarter had sparked speculation it would skip the 
easing bias this time. 
    "I think the most significant aspect in the statement is the 
fact it ends with the comment that 'the most prudent course of 
action is through stability in interest rates' so they seem to 
have moved more firmly into the neutral camp than they have 
been," said Shane Oliver, chief economist at AMP Capital. 
    "They do seem to have watered down the $A comment."    
    A Reuters poll of 21 analysts had found all expected the RBA 
to hold steady, while many argued the next move would be up 
rather than down, albeit not for many months yet.  AU/INT  
    The market had priced in almost no chance of a move this 
week and trimmed the probability of a further cut to just one-in 
five   . 
    The central bank will have scope to expand on its reasoning 
in its quarterly economic outlook due on Friday. 
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    Global rates:             http://link.reuters.com/gam87t  
    Inflation vs rates:       http://link.reuters.com/hut77s  
    Tradable vs non-tradable: http://link.reuters.com/hes77s  
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    NOT SO UNCOMFORTABLE 
    The RBA also dropped a reference to the Australian dollar 
being "uncomfortably high", which had been part of a long verbal 
campaign to pull the currency lower to benefit the trade-exposed 
sectors of the economy. 
    On Tuesday  it stated only that: "The exchange rate has 
declined further, which, if sustained, will assist in achieving 
balanced growth in the economy." 
    The change could in part be due to a surprising acceleration 
in underlying inflation last quarter to an annual 2.6 percent, 
well above the 2.25 percent the central bank had forecast. 
    Stevens noted that the fall in the local dollar was feeding 
through to inflation more quickly than anticipated. 
    Yet, he added that while inflation was now likely to be 
somewhat higher than first thought, it was still expected to 
remain within the bank's 2 to 3 percent target over the next two 
years. 
    Low interest rates have been filtering through to higher 
house prices and home building, while boosting household wealth 
and giving consumers the confidence to start spending again. 
    The RBA started lowering rates all the way back in November 
2011 and its last move was in August 2013. 
    Stevens made only passing reference to the recent turmoil in 
emerging markets and the recent slide in stocks.        
 
 (Editing by Eric Meijer) 
 ((Wayne.Cole@thomsonreuters.com)(612 9373 1813)(Reuters 
Messaging: wayne.cole.thomsonreuters.com@reuters.net)) 
 
Keywords: AUSTRALIA ECONOMY/