The Reserve Bank of Australia (RBA) looks set to keep interest rates at record lows for the foreseeable future following minutes from its most recent board meeting, the Reserve Bank noted current market pricing suggested “little chance of a change in monetary policy at present”.
Low interest rates helping the housing market
The board decided at its February meeting to keep rates on hold at 2.5%, following a series of cuts from its peak of 4.75% in November 2011.
“Members noted that the effects of low interest rates were clearly evident in the housing market, where prices had increased further and turnover had picked up to be just below average. These conditions were expected to provide further support to new dwelling activity over the period ahead, and leading indicators of dwelling investment had increased. Members observed that the softness in commercial construction meant that there was labour available to support the strong growth of higher-density dwelling construction. Growth of housing credit was gradually picking up, particularly so for investors.” said the RBA.
“The overall funding composition of Australian banks was little changed, with deposits remaining the dominant source of funding, but there had been a shift from term to at-call deposits in response to changes in relative interest rates.”
“These conditions were expected to provide further support to new dwelling activity over the period ahead, and leading indicators of dwelling investment had increased.”
Prudent to keep interest rates on hold
“At recent meetings, the Board had judged that, given the substantial degree of monetary policy stimulus already in place, it was prudent to keep policy unchanged while assessing the continuing impact of that stimulus. There had been further signs in recent months that policy was having its intended effects. The exchange rate had also depreciated further since the December meeting. If sustained, a lower exchange rate would be expansionary for economic activity and assist in achieving balanced growth of the economy.”
In summary, the RBA’s decision was once again that it would be prudent to keep rates unchanged and they would continue to examine the data over the period ahead to assess whether monetary policy remained appropriate, with members noting that, “if the economy evolved broadly as expected, the most prudent course would likely be a period of stability in interest rates.”