The RBA’s decision to keep the cash rate on hold has disappointed the Housing Industry Association (HIA), which claims it reduces the potential for residential building activity to support the national economy.
"The RBA had the option to reduce rates today and deliver badly needed support to businesses and households. By failing to move, the weaknesses in the residential construction industry will merely be prolonged," says HIA senior economist, Shane Garrett.
"Outside of the mining sector, growth in other sectors of the economy is quite weak. This includes residential construction, where activity is at its lowest in almost a decade. Lower interest rates are badly needed to help place the industry on a sustainable growth path and to give businesses a bit of breathing space in terms of interest costs.”
Garrett argues that the national economy needs a strong residential building sector in order to ‘substitute’ for the decline of the mining industry.
"The scope for further reduction in the cash rate exists, despite the RBA's concerns about inflation. It must be remembered that the inflationary impacts of the recent dollar decline will be limited by the considerable slack that exists across sections of the economy as well as the use of fixed price contracts with suppliers," says Garrett. "Accordingly, the RBA should not allow worries about inflation to hold it back from providing necessary stimulus to the economy.”
"Since November 2011, the banks have withheld up to 35 basis points of rate reductions from small business and mortgage borrowers. The RBA's failure to move today means that the banks now have the opportunity to seize the initiative.”