Australia's construction activity further weakened in February, notwithstanding the rate cuts introduced late last year by the country's central bank, which failed to boost housing and commercial building projects in the past few months.

The latest performance of construction index (PCI) jointly released on Wednesday by the Australian Industry Group (Ai Group) and Housing Industry Association (HIA) showed that construction retreated anew in February by 4.5 points to 35.6, coming from the 39.8 points registered in January.

Contraction is considered in effect below a reading of 50.

The February construction gauge marked the 21st consecutive month that building has shrunk in Australia and represented the lowest level that the sector had registered in the past four months, analysts said.

The new index showed that construction of commercial and apartment buildings in February declined the most, with the latter sliding by 0.2 point in the month.

House building also plunged by 3.2 points to 37.9, the survey said.

As the number of employed in the month pointed to retreats of 6.8 points to 38.5 last month, indicating that building projects started dwindling by February, new orders also sunk by 1.7 points to 34.2.

The report came out following the Reserve Bank of Australia's (RBA) decision to implement a hold on the 4.25 per cent interest rate that was in effect since December last year, citing indicators that showed exports will continue to pick up in the months ahead.

New orders of iron ore, coal and natural gas have been spiking, thanks much to China and India, the RBA said, adding that the economy appears to be stabilising despite the existing pressures here and abroad.

The RBA is convinced that the economy is heading the right track despite the challenges being faced by the manufacturing and retail sectors, which most analysts attributed to the surging Australian dollar.

Job cuts could also mar what the RBA has characterised as a stabilising economy, analysts said, with the banking industry indicating that rising wholesale funding costs would force key players to roll out painful adjustments.

HIA senior economist Andrew Harvey told the Australian Associated Press (AAP) that the RBA policy appears to be not much of a help and the present cash rate has so far fell short in fuelling growth, specifically in the construction sector.

"The ongoing policy gamble of an almost sole focus on the resources sector, combined with interest rate settings that remain too high, continues to hang like the sword of Damocles on not only the construction sector but the Australian economy," Mr Harvey said.

Also, the successive rate cuts last year were not enough to push construction into some sort of a turnaround at the start of 2012, according to Peter Burn, public policy director for the Ai Group.

"The tentative signs of recovery that had emerged in the closing months of 2011 as interest rates were lowered, appear to have dissipated since the start of this year," Mr Burn said in a statement that accompanied the report.

"With new orders also weak in February and with market interest rates now somewhat higher, the outlook for the next few months remains flat, particularly for commercial and residential construction," Mr Burn added.