The buoyant growth indicators and medium term inflation indicators moving higher argued against lowering the official cash rate (OCR).
But low near term consumer price inflation gave no sense of urgency to raise it, he said. Inflation would be low and perhaps be even negative in the near term, but there was no evidence in recent business surveys low inflation would become entrenched.
''If anything, there is a sniff of some medium term inflationary pressure wafting around. In line with this, capacity utilisation pushed further above its longer term average.''
Inflation remains below RBA's target band.
In Australia, inflation is staying well below the Reserve Bank's 2 3% target range, keeping the door open for more interest rate cuts. New Zealand's Reserve Bank has a target of 1 3% for inflation.
Consumer prices rose 0.4% in March, following a flat result in February, according to the TD Securities/Melbourne Institute monthly inflation gauge.
The annual rate of inflation was 1.5%, and in January was 1.3%. New Zealand's inflation rate is 0.9%.
TD Asia Pacific research head Annette Beacher said the RBA was in an uncomfortable position because the housing sector was staying strong but the rest of the economy was sluggish and price growth was staying low.
''While low inflation certainly allows the RBA to cut the cash rate further, we pencil in only one more cash rate reduction to 2% in May,'' she said.
An ANZ Business Outlook showed New Zealand business confidence rose to a seven month high in March, led by improved sentiment in the agricultural sector.
The results were in line with several other surveys published at the end of last week.
A net 35.8% of firms were optimistic about the general economy, up from 34.4% last month, according to the ANZ Business Outlook. Agriculture improved the most, with a net 24.1% optimistic, up from 15.2% last month, which ended six consecutive months of pessimism. Still, agriculture remained the least confident sector.
Higher rainfall, which pushed back the threat of widespread drought, and lifts in dairy prices helped buoy agricultural confidence last month. Recent falls in dairy prices could weigh on sentiment in the sector next month, ANZ said.
''Kinder weather _ or should we say less intense drought conditions _ and lifts in dairy prices over late February have been the elixirs,'' ANZ Bank New Zealand chief economist Cameron Bagrie said.
''But the litmus test will come in April, given dairy prices are under renewed pressure.''
Dairy prices slid nearly 11% at the end of last week.
Firms were more optimistic about their own outlook and sentiment rose to a net 42.2% from 40.9% last month.
''Businesses remain very optimistic about their own prospects. That's what firms know best and it's therefore the real litmus test, with a strong correlation to GDP growth,'' he said.
Mr Steel said the ANZ survey was another strong one and proved stronger than might have been imagined.
''We remain of the view economic growth is probably peaking around about now.
''But it has to be said, if indicators such as these remain as robust as they are, we might start to wonder if GDP growth will start to slow this year in the manner we currently forecast.''
