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Sydney. Australian consumers showed signs of resilience in April as government handouts kept retail spending at record levels while also driving sales of new homes higher for a fourth straight month.

The hints of improvement came even as a slide in company profits reinforced expectations that the economy contracted last quarter, the first official recession since 1991.

Investors chose to focus on the prospects for recovery, pushing the local dollar to eight-month highs and pricing out almost any chance of the Reserve Bank of Australia cutting interest rates at its monthly policy meeting today .

“The retail numbers were pretty good and got the second quarter off to a healthy start,” said Rob Henderson, head of market economics at National Australia Bank.

“It’s clear and present evidence that efforts by policy makers are working,” he added. “The RBA is comfortably on hold and these figures do nothing to change that.”

Since September, the central bank has cut its key cash rate by a huge 425 basis points to a record low of 3 percent, a boon for homeowners in a country where most mortgages are floating.

The market has nearly priced out any chance of further rate cuts, although some analysts predict it could yet fall to as low as 2 percent in the coming months.

The Labor government has chipped in with more than 52 billion Australian dollars ($41.9 billion) of stimulus, including a chunk of tax rebates. That helped retail sales rise a seasonally adjusted 0.3 percent in April, on top of a hefty 2.2 percent gain the month before. Total sales of 19.4 billion Australian dollars were 6.8 percent higher than in April last year.

“It means spending got off to a healthy start for the second quarter and increases the chances for positive growth,” said Brian Redican, a senior economist at Macquarie. “Policy makers should be pleased with that outcome.”

The Australian dollar rose to as high as 80.75 US cents, lifted also by data that showed manufacturing in China, Australia’s biggest trading partner, continued to expand in May.

There were other signs of a pickup, with new homes sales rising 0.5 percent in April to be up 22 percent from the depths hit in December.

An index of manufacturing activity showed the biggest monthly bounce in May since the series began in 1992, though it still pointed to contracting activity overall.

But government figures on company profits for the first quarter underlined just how tough the first few months were for businesses. Gross operating profits dropped 7.2 percent, compared with the previous quarter, with manufacturing profits diving 25 percent and mining 11 percent.

Firms also chose to run down stocks rather than produce more, cutting inventories by a sizable 1.2 percent in the quarter.

“Profits and production were both very weak for the quarter,” said Scott Haslem, chief economist at UBS.

This reinforced expectations that the gross domestic product report, due on Wednesday, would show a second quarter of contraction — the typical definition of recession. Median forecasts are that GDP fell by 0.2 percent in the first quarter, after a 0.5 percent decline the previous quarter.

One side effect of this slowdown has been a marked moderation in price pressures.

A private gauge of inflation released on Monday showed a 0.3 percent drop in May, led by falling rents.

Annual growth in the TD Securities-Melbourne Institute inflation gauge slowed to 1.5 percent, from 2.1 percent in April. That was the lowest annual pace since the series began and under the RBA’s long-term target band of 2 percent to 3 percent.

“With the recession starting to bite, inflation has all but disappeared,” said Annette Beacher, a senior strategist at TD.

“There is now ample evidence that material downside risks exist to the inflation outlook, clearly leaving the door open for lower interest rates,” she argued.

Reuters