* RBA keeps rates at 4.75 pct as expected
* Says inflation contained, Japan effect limited
* Markets imply scant risk of hike for months yet
By Wayne Cole
SYDNEY, April 5 (Reuters) - Australia's central bank kept interest rates steady on Tuesday for a fifth month saying a lofty local dollar, moderate wages growth and intense retail competition would help keep inflation contained for the year ahead.
The Australian dollar stayed very close to 29-year highs as the Reserve Bank of Australia (RBA) surprised no one by leaving its cash rate at 4.75 percent after its April policy meeting, and sounded in no rush to move again.
"At today's meeting, the board judged that the current mildly restrictive stance of monetary policy remained appropriate in view of the general macroeconomic outlook," RBA Governor Glenn Stevens wrote in a brief statement.
Interbank futures <0#YIB:> imply little risk of a further hike until September at the earliest and only a one-in-three chance of a move by Christmas. Investors have widened the odds in recent weeks as Japan's quake and surging oil prices clouded the outlook for global growth.
Yet the RBA played down the broader impact of the disaster in Japan, saying it would have a limited impact on the Asian region, which had been enjoying very strong growth.
"My inclination is they still have a mild tightening bias but at this stage don't see any great urgency to act on it," concluded Shane Oliver, chief economist at AMP Capital.
"The statement still emphasises terms of trade at the highest level since the early 1950s, strength in national income, strength in private investment and also confidence production should return in the month ahead," he said.
The RBA led the developed world by hiking interest rates 175 basis points in seven steps from October 2009 to November 2010. Some Asian nations have also been tightening to control inflation and the European Central Bank this week is expected to join the club with its first increase in almost three years.
CONSUMERS SAVE, MINERS SPEND
The RBA's pre-emptive policy seems to have worked well to tame inflation and curb consumer demand.
Underlying inflation slowed to a decade-low around 2.25 percent in the final quarter of 2010 and there are signs it may have subsided to the floor of the RBA's 2 to 3 percent target band in the first quarter of this year.
"These moderate outcomes are being assisted by the high level of the exchange rate, the earlier decline in wages growth and strong competition in some key markets," Stevens wrote.
Consumers have helped by spending less and saving the most in almost two decades, forcing retailers to discount more heavily. A rising local dollar has also played a part by pulling down the cost of imported goods and offsetting higher petrol and food prices.
Flooding across the state of Queensland is also proving a drag on economic growth, at least in the short term. Treasurer Wayne Swan last week estimated that the total costs of the dire weather could reach A$9 billion, while a big hit to coal exports would take a chunk out of tax revenues.
Japan's earthquake was a further blow to Australia's second-biggest export market, though spending on rebuilding could generate greater demand for resources over the longer term.
Still, the disruptions to supply coupled with robust Asian growth have also led to record contract prices for coal and iron ore, Australia's two biggest export earners.
This has proved a massive windfall for mining profits and fuelled a stupendous pipeline of investment projects. Firms plan to lift spending by a fifth to A$128 billion in the year to June and then to A$160 billion in 2011/12, a huge boost to Australia's A$1.3 trillion economy.
That is a major reason the RBA expects the economy to expand at a rapid 4.25 percent pace for all of 2011, and grow around 4 percent in the following next two years.
($1 = 0.964 Australian Dollars) (Editing by Ed Davies and Richard Borsuk)