Australian Property News

Reserve Bank leaves room to move on interest rates

Posted on Tuesday, February 19 2013 at 2:29 PM

The release of minutes from the Reserve Bank of Australia’s (RBA) meeting earlier this month point to a potential future rate drop.

“The inflation outlook, as assessed at this meeting, would afford scope to ease policy further, should it be necessary to support demand,” the minutes said.

The bank’s decision to hold the cash rate at three per cent was decided in a climate of mixed results with positive data for Australia’s economy and the property industry tempered by a lack of confidence in employment and finance, according to the RBA.

“Resource exports had increased strongly up to December and a range of indicators pointed to further gradual improvement in conditions in the housing market.

“On the other hand, housing finance remained relatively subdued and indicators suggested that non-mining business investment would continue to be weak in the near term.”

The RBA believes previous cuts to the cash rate are taking effect in housing.

“While conditions remained soft in the construction industry, there were some signs that the housing market had firmed, partly due to the series of interest rate reductions over 2012… and prices and rental yields in the established housing market had also picked up.

“Improving conditions in the housing market were expected to continue to provide support to dwelling investment.”

Last year’s inflation rate remained within the RBA’s target range of two to three per cent and the underlying inflation rate was expected to be around the 2.5 per cent mark for the first few quarters of 2013.

Given the extent of easing in interest rates over the 15 months, the RBA felt it was prudent to keep the cash rate at three per cent in the wake of previous cuts.

“Interest rate sensitive parts of the economy had shown some signs of responding to these lower rates, which were well below their longer-run averages, and further effects could be expected over time.”

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