RBA playing waiting game with rates

The RBA has taken a 'wait and see' approach to rates as it argues its cuts have yet to show their full impact



The RBA is waiting to see how recent interest rate cuts flow through the economy before deciding if it needs to cut the cash rate further in 2013, according to its February 5 meeting minutes, released yesterday.

The bank said there were signs the 1.75 percentage points in interest rate cuts delivered between November 2011 and December 2012 were starting to provide a boost to underperforming sectors, including housing.

‘‘Interest rate sensitive parts of the economy had shown some signs of responding to these lower interest rates, which were well below their longer-run averages, and further effects could be expected over time. Noting that monetary policy was already accommodative as a result of the substantial easing of policy over the past 15 months, and that this stimulus was continuing to work its way through the economy, the board judged that it was prudent to leave the cash rate unchanged at this meeting.’’

While conditions remained soft in the construction industry, members said there were some signs that the housing market had firmed, partly due to the series of interest rate reductions over 2012.

#pb# “Notwithstanding month-to-month volatility, building approvals had increased since the middle of 2012, particularly in states other than Victoria, and prices and rental yields in the established housing market had also picked up.”

Following the December cash rate announcement, the RBA says most Australian lenders reduced their standard variable housing rates by around 20 basis points.

“This reduction had brought the average interest rate on outstanding housing loans to well below its longer-run average and only a little above its 2009 low. Rates on small and large business loans were also close to their 2009 lows.”

RBA board members were also briefed on the GDP outlook, which is forecast to be slightly below trend at 2.5% over 2013.

However, they were also told that ‘improving’ conditions in the housing market are expected to continue to provide support to dwelling investment, while non-mining business investment is expected to pick up gradually over time.

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