Minutes of the board meeting this month, released yesterday, depict a knife-edge call when the central bank held rates steady, breaking a run of five rate cuts since September.

The minutes described the decision as a "pause", suggesting more cuts which could come as soon as next month.

The governor, Glenn Stevens, departed from his usual practice of making a recommendation. Instead, he offered a choice - reduce rates to give another boost to the economy, or wait to see the impact of previous cuts.

The Reserve said there were early signs that the combination of low interest rates and Government stimulus payments was helping support the economy.

It has also emerged that another recent policy - the $8 billion plan to revive competition in the mortgage market - involved the Government providing subsidised finance to second-tier lenders such as Bendigo Bank and AMP.

In October the Treasurer, Wayne Swan, asked the Government's bond manager, the Australian Office of Financial Management, to invest in mortgage bonds issued by small banks and non-bank lenders to help them remain competitive with the big four banks.

The policy had two rationales - to stimulate competition among lenders and reinvigorate the market for mortgage-backed securities, a big source of funds for small financiers.

But the agency does not disclose the return it receives, on behalf of the Government, on investments in mortgage bonds.

Last week, Bendigo Bank sold the office $475 million in high-rated mortgage bonds. As part of the deal, Bendigo will pay the Government interest rates well below market prices for these types of bonds.

The agency's chief executive, Neil Hyden, said the Government was in no danger of losing money on the deals but the agency could have extracted a higher return.

He said there was a "tension" between obtaining a return for the Government, and offering banks and lenders a deal that would keep them viable.

A partner at Mallesons Stephen Jaques, Ian Edmonds-Wilson, said the policy was helping maintain competition in the mortgage market but questions were being asked about the prices the agency paid. The issue illustrates the complexities the Government will face as it becomes increasingly involved in patching up the financial system.

Another initiative, the Australian Business Investment Partnership, commonly known as Ruddbank, is at risk of being scuttled by the Opposition. Yesterday it said it would vote against it. The purpose of Ruddbank, a joint venture between the Government and the big four banks, was to lend to commercial property developers if foreign banks pulled out of local deals.

The Reserve Bank's meeting was held the day before official figures revealed the economy shrank 0.5 per cent late last year.

The bank said it had expected a small fall in gross domestic product.

Matt Robinson, an economist at Moody's Economy.com, said: "Further interest rate reductions in Australia are inevitable, given the breadth and depth of the global economic downturn."