RBA says it could still lower rates
The Reserve Bank of Australia has indicated it may still lower interest rates though likely not in the short term.
It was enthusiastic about the response to previous rate cuts, according to RBA minutes published today.
“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,” the minutes said.
It said building activity had increased, dwelling prices increased to 7% above previous troughs, clearance rates are noticeably higher than a year ago and housing turnover has increased.
“Overall, recent data and information from liaison were consistent with further recovery in the established housing market and moderate growth in dwelling investment.”
It said previous cuts worked well to provide policy stimulus, particularly in housing.
“Lending rates had declined to historically low levels as a result, which, together with the lower – though still high – exchange rate, were continuing to provide a substantial degree of policy stimulus to the economy.”
“This was most evident in the housing market, with the lags in the effect of policy meaning that earlier actions were still likely to take some time to have their full effect on demand more generally.”
But it warned banks to remain vigilant in their lending policies.
“Members observed that banks' asset performance and funding structures continued to improve, and their profitability remained strong compared with that seen in most other advanced economies. In the current environment of low interest rates and slow credit growth, members agreed that it was especially important that banks maintained prudent lending standards.”
It warned it could start looking closely at property gearing in self-managed super funds.
“Property gearing in self-managed superannuation funds was one area identified where households could be starting to take some risk with their finances; members noted that this development would be closely monitored by Bank staff in the period ahead.”