RBA flags end to interest rate easing by year’s end
May 21, 2009
The minutes of the Reserve Bank of Australia’s May Board Meeting were released on Tuesday, with indications that the central bank was seeing green shoots for the economy that could reduce the chances of further easing of monetary policy.
The RBA has cut rates swiftly from 7.25 per cent to 3 per cent today, with six reductions as the economy has contracted. The RBA paused in May, however, and Governor Glenn Stevens noted that the Australian housing sector had been relatively resilient in contrast to other developed economies.
“(With regard) to the housing sector, building approvals (have) recently picked up, which was confirmed by figures for March released during the meeting, with a significant increase in first-home buyers purchasing newly constructed homes,” the Board advised. “The latest ABS data on nationwide house prices showed a fall in the March quarter, though private-sector data for the same period had shown little change.”
“Members noted that while house prices in the most expensive suburbs had fallen significantly over the past year, prices in the least expensive suburbs had risen recently.”
The RBA reported that business credit had contracted in three of the past four months but business debt funding was not as weak because some companies had accessed capital markets directly. Businesses were looking to reduce debt but they were also struggling to obtain funds in “an environment in which lending standards were being tightened”.
The minutes of the Meeting suggested that the central bank was confident in the Australian economy prospects of growth beyond 2009, suggesting that further cuts will not be sharp.
Foreign exchange markets have factored in a 22% chance of the Board reducing interest rates by one quarter of a per cent next month, with economists believing the cash rate could fall as low as two per cent by the end of the current expansionary cycle.