Australia's central bank kept its cash rate at a record low of 2.5 per cent yesterday as a report showed past interest rate reductions had lifted home prices to historic highs, although there was little guidance on the chance of further cuts.

The Australian dollar jumped in response as many in the market had expected a more dovish tone from the Reserve Bank of Australia (RBA) after its monthly policy meeting. Instead, the central bank stayed mum on the outlook.

"The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target," RBA governor Glenn Stevens said.

Some had thought the RBA might specifically refer to there being scope to ease again if necessary, and reacted by slightly paring the chances of another rate cut in coming months.

Then again, minutes of the central bank's September meeting showed the board did not want to close off the possibility of further cuts, but neither did it want to signal an imminent intention to ease.

The RBA cut rates in May and August in large part because a long boom in mining investment had peaked and spending by other sectors had yet to fill the gap.

There are signs that low mortgage rates are reviving the housing market. Approvals to build new homes grew 28 per cent in the year to July.

Home prices in the major capital cities rose 1.6 per cent last month from August to reach a record, according to property consultant RP Data. Sales at auctions have also been near historic highs, prompting much debate in the media about whether the market was entering a bubble.

The RBA has branded all the talk of bubbles as "unrealistically alarmist", noting that some gain in prices is needed to encourage developers to build more homes.

"One of the most positive outcomes of the strong housing market conditions is the flow-on effects for new housing construction," said RP Data's director of research Tim Lawless. "An uplift in the new housing sector is exactly what policymakers are hoping to see from the low-interest-rate setting."

Matthew Johnson, an interest rate strategist at UBS, said the RBA was "now more confident that the current setting in policy is getting the job done".

"That means that the barrier to cutting rates is getting higher in the future," he said. "I think the RBA is on hold this year with the risk of a rate cut next year."

Yet, low rates have had less luck in stimulating consumer spending. Ever since the global financial crisis, Australians have become more careful with their money, choosing to save more and borrow less, a painful sea change for retailing.

Figures from the Australian Bureau of Statistics yesterday showed retail sales edged up 0.4 per cent in August after a run of very soft months. Annual growth of 2.3 per cent was less than half the pace common for much of the previous decade.

Neither is the Australian dollar co-operating with policymakers who have been counting on a weaker currency to ease competitive pressures across the hard-hit manufacturing sector.

The aussie has rebounded about 4 US cents over the past month, partly in reaction to the US Federal Reserve's surprise decision to keep its asset-buying programme intact.

"A lower level of the currency than seen at present would assist in rebalancing growth in the economy," Stevens said yesterday.