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Rates on hold

Rates on hold

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Staff Reporter

The Reserve Bank of Australia has left the official cash rate on hold at 4.25 per cent for the second consecutive month.

In the minutes of the Monetary Board Meeting, the Board said that "the expectation that the world economy will grow at a below-trend pace this year, but does not suggest that a deep downturn is occurring.

"Most information on the Australian economy continues to suggest growth close to trend overall, with differences between sectors and considerable structural change. Labour market conditions softened during 2011 and the unemployment rate increased slightly in mid year, though it has been steady over recent months. CPI inflation has declined as expected and will fall further over the next quarter or two."

"Interest rates for borrowers have generally risen slightly since the Board's previous meeting, but remain close to their medium-term average. Credit growth remains modest. Housing prices have shown some sign of stabilising recently, after having declined for most of 2011, but generally the housing market remains soft."

The decision was largely expected, with most economists now expecting rates to stay on hold until mid-year.

RP Data’s research director Tim Lawless said capital city home values were down just 0.2 per cent over the three months leading up to the interest rate decision.

“A return to stability in the housing market is precisely the outcome the RBA have been aiming for with respect to housing market conditions,” Mr Lawless said.

“The full impact of the rate cuts from November and December last year is yet to be seen, however to date there has seen a subtle improvement in transaction numbers prior to the Christmas slow down. 

“Housing finance data from the ABS has also been trending upwards suggesting we are likely to see the number of home sales continue to show modest increases over the coming months. 

“Based on the recent data flows it is becoming increasingly clear that the housing market is likely to be less of a concern to the RBA.

“Mortgage arrears appear to be in check, home values are stabilising and transaction volumes are starting to tick up.”

Mr Lawless said any future downwards movement in the cash rate is likely to be more reflective of ongoing global uncertainty rather than a response to a further slowdown in housing market conditions. 

“In fact, we believe that the RBA is likely to be quite comfortable with the current state of Australian housing market but will continue to closely monitoring conditions over the coming months to measure the ongoing affect of the interest rate environment on borrowing and value movements.”

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