Housing industry downer not quite enough as RBA awaits security blanket of benign inflation data

The Reserve Bank of Australia kept rates on hold at its April meeting despite spending “some time” exploring reasons for the weakness in many of the indicators for housing turnover and building activity across Australia.

But taking into account other factors, the board decided a month’s delay in any further cutting of rates was the prudent thing to do.

“They noted the apparent sensitivity of developers to the outlook for dwelling prices,” the RBA minutes note.

“New dwelling construction had fallen in the December quarter and there was little sign of a pick-up in building or loan approvals, though house prices had shown some signs of stabilising recently.

“While auction clearance rates in Sydney and Melbourne had picked up a bit of late, they remained below their average levels,” the RBA minutes note.

But the board, noting it had eased monetary policy late in 2011, concluded slower growth in demand could be expected to result in a more moderate inflation outcome, which might then present a case for a further easing of monetary policy.

“The board would have the opportunity at its next meeting to review the inflation outlook based on comprehensive new data on prices, as well as information on demand and output.

“Members judged it prudent to evaluate those data before considering a further policy adjustment,” the minutes conclude.

The board noted indicators of business activity had been mixed, labour market conditions remained subdued, and that world economy growth was at a below-trend pace with the moderate expansion of the US economy continuing but economic conditions in several European countries remaining very weak.