The annualised growth rate of the Westpac–Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was 5.3 per cent in March 2011, above its long term trend of 3.4 per cent.

The annualised growth rate of the Coincident Index was 2 per cent, well below its long term trend of 3.2 per cent.

Westpac chief economist Bill Evans said the growth rate of the Leading Index appears to be stabilising at a pace above its trend rate.

"That growth pace is broadly consistent with Westpac's forecast that the Australian economy will be growing at an annualised pace of around 4.5 per cent in the second half of 2011,” he said.

“Official sector forecasts from the Reserve Bank and Treasury appear to be even more upbeat than Westpac with the Reserve Bank's recent Statement on Monetary Policy implying forecast growth in the second half of 2011 will run at an annualised pace slightly in excess of 5 per cent.”

Evans said from October 2010 to March 2011 the growth rate of the Leading Index increased from 4.7 per cent to 5.3 per cent.

“The major source of the increased growth rate was the ‘overtime worked’ series which contributed 1.2 ppt's. The major offset came from ‘manufacturing materials prices’ whose contribution to the growth rate fell by 0.5 ppt's,” he said.

Evans also said the Reserve Bank of Australia has yet to make a full case on reasons to raise the cash rate any further this year.

“While it is reasonable for markets to assume that one month is not critical to a central bank market pricing does not give full certainty to a hike until June next year. The implication is that markets expect that the Bank, despite it’s very clear rhetoric, is unconvinced about the need to hike and will need to build a stronger case,” he said.

“The markets seem to believe that case will not be fully made for more than a year.”