RBA signals potential for further cuts

The Reserve Bank has confirmed that further rate cuts are likely



The RBA has indicated that further rate cuts may still be needed, despite low interest rates providing a much-needed boost to the housing market.

In the minutes from its April 2 board meeting, the RBA said conditions in weaker parts of the economy appear to be improving.

However, they believe it will still take some time for the full effects of recent rate cuts to flow through the economy.

The RBA cut the cash rate 1.75 percentage points between November 2011 and December 2012 and opted to hold it at 3% during the April board meeting, though they said the high value of the Australian dollar and weakening growth in the mining sector were putting pressure on the economy – signalling further rate cuts may be necessary.

With inflation expected to remain between 2-3% for the foreseeable future, the RBA says there’s room to cut again if necessary.

 “At this meeting, the board's judgment remained that, on the information currently to hand, the most prudent course was to hold rates steady and to continue to assess developments over the period ahead,'' said meeting minutes released yesterday.

The RBA said there were signs of improvement in the housing sector, with a rise in the number of home loans, stronger conditions in the housing market and moderate growth in dwelling investment.

“House prices increased again over March, to be 4.25% above their mid-2012 trough, auction clearance rates had moved higher and there were signs of somewhat stronger growth in housing loan approvals. The Bank's liaison with home builders suggested that demand for new housing had been a little more positive of late, with a rise in activity reported in most capital cities.”

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