RBA leaves rates unchanged
As expected, the Reserve Bank has left interest rates unchanged at 4.25% for the second successive monetary policy meeting.
There were no surprises this time around, with all 23 economists polled by Bloomberg last week forecasting the RBA to leave the cash rate on hold.
In his statement following the announcement, RBA governor Glenn Stevens said “housing prices have shown some sign of stabilising recently, after having declined for most of 2011, but generally the housing market remains soft”.
The Australian dollar fell slightly to $1.061 against the US dollar following the announcement. It was trading at $1.064 just before the announcement, having opened at $1.067. You can track the dollar here.
Laing+Simmons general manager Leanne Pilkington says debt refinancing efforts in Europe provided the “necessary reprieve for the RBA to stay on the sidelines, because from a domestic perspective, the two-speed economy is still seeing the states less impacted by mining experience softer conditions”.
“It appears the RBA has taken the view that the international economic landscape will provide a sufficient platform for our mixed-bag national economy to weather an unchanged interest environment.
“However, from a housing market perspective, now that the major banks have clearly demonstrated their unwillingness to be guided by the Reserve Bank, mortgage holders can no longer breathe a sigh of relief.
“Certainly after the interest rate increases the banks slugged their customers with last month, despite the RBA not moving on rates, there is no justification for them doing so again. But we’ll have to wait and see if they are again willing to face the public backlash,” she says.
Commonwealth Bank economist Peter Dragicevich said ahead of the announcement that while the bank continued to have a further rate cut “pencilled in for May, with the overall domestic economic picture remaining positive, the global macro backdrop stabilising and the risks of a full-blown banking crisis in Europe abating, there is a risk that we may be at the end of the RBA’s easing cycle”.
ANZ borrowers will have to wait until Friday (March 9) when the bank makes its independent interest rate decision to find out whether there will be another interest rate adjustment out of cycle with the RBA.
Other lenders may also wait to see what ANZ does before making any decisions.
Since the February out-of-cycle rate rises the major banks have repeatedly said that there is now a disconnect between the RBA’s cash rate and mortgage lending rates due to higher funding costs.
The RBA decision to leave rates on hold follows the two rate cuts in November and December, which helped lift business and consumer confidence. The Westpac-Melbourne Institute Consumer House Price Expectations Index rose to its highest level since April last year, the first gain since January 2010.
According to Westpac, more than 53% of Australian economic data has improved in the past eight weeks, up from 40% in December.
However, housing credit growth has remained subdued (up just 0.5% in January), new home sales fell by 7.3% in January to the lowest reading in 11 years and retail sales rose by just 0.3% in January after sliding by 0.1% in December.
The release of GDP figures for the December quarter on Wednesday as well as February unemployment figures (both sets of data from the ABS) will be factors in the next rate decision on April 3.