Official rates on hold following February cut
Weak
recent economic data indicates further rate cuts likely
Housing
market activity rising as confidence lifts with falling rates
The
Reserve Bank has decided to leave official interest rates on hold over March following
its February rate cut.
The
Bank cut rates last month after 16 consecutive months on hold reflecting
growing concerns over the performance of the national economy.
Official
rates will remain at the record low of 2.25 percent despite recent data
indicating a further weakening in the economy.
The
ABS reported a national unemployment rate of 6.4 percent over January – the
highest monthly rate for 12 years.
ABS
wage index data also points to a stagnant economy with the 2.5 percent growth
over 2014 the lowest annual result recorded in the series.
Australia’s
low growth, low inflation economy was validated by ABS CPI data which recorded
minimal 1.7 percent growth over 2014.
With lower fuel costs yet to impact the general economy the inflation
rate is set to remain low and likely weaken which will act to reinforce
underlying low wages and profits growth.
High
budget deficits constrain policy makers’ capacity to stimulate economic growth
leaving the heavy lifting to monetary policy.
Other
recent data however has been more encouraging.
Although capital city home building approvals fell over December, an
annual increase of 15 percent was recorded over 2014.
Despite
generally underperforming local economies, early signs are that housing markets
have commenced 2015 positively. Auction
activity in Sydney, Melbourne and Brisbane has been solid to strong with the
Sydney market remaining particularly robust.
Although
rates remain on hold over March the bias for future action from the Bank clearly
remains downwards. Much will depend as usual on measures of economic activity -
particularly unemployment rates.
Rising
housing market activity on the back of lower mortgage rates, may present the
Reserve Bank with a dilemma however with further rate cuts potentially fuelling
strong prices growth particularly in the Sydney market.
Dr
Andrew Wilson is Domain Group Senior Economist
