Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory & buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

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Tuesday, 17 September 2013

RBA maintains easing bias - interest rates to stay low

There has been a lot of talk about the Reserve Bank moving to cool the housing market this week. But has the RBA actually indicated this itself? Here's what the Minutes from its last Monetary Policy said:

"Conditions in the housing sector had continued to improve in response to lower interest rates. 

Information to hand suggested that building activity had increased moderately in the June quarter and building approvals increased in July. 

Dwelling prices had increased further over recent months, to be 7 per cent above their trough in the middle of the previous year, auction clearance rates were noticeably higher than a year earlier and housing turnover had increased from relatively low levels. 

Overall, recent data and information from liaison were consistent with further recovery in the established housing market and moderate growth in dwelling investment."

These do not sound like the words of a concerned central bank. Far from it, in fact.

Rather, the RBA appears desperate to stimulate housing construction and wants to leave interest rates low and see moderately higher house prices in order to achieve the goal. They seem to be a long way from the panic implied in parts of the media.

As for whether we will see a hike in the cash rate soon as many seem to be suggesting - the RBA says no to that as well.

Elsewhere in the release the RBA talks in a dwonbeat manner about a subdued labour market, weaker wages growth and an expected drop-off in mining investment.

And I know some have been downplaying the strength of the Aussie dollar thanks to an improved global outlook, but the RBA refers to it as "still high" - and it has moved all the way back up to 93 cents since their meeting was held.

The final paragraph of the Meeting minutes confirms that the easing bias remains (and hikes are off the table for some time):

"Given the substantial degree of policy stimulus in place, the Board judged that it was appropriate to retain the current setting of interest rates. 

Members agreed that the Bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them. The Board would continue to examine the data over the months ahead to assess whether monetary policy was appropriately configured."

Rates will almost certainly remain on hold in October and the RBA will assess again in November whether there is a need for another cut.