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The Reserve Bank of Australia has good news for first home buyers: the record-low cash rate is “likely to be appropriate for some time yet”.
The cash rate has been fixed at 2.5 per cent for nine months after the Reserve Bank decided to leave rates on hold at its monthly meeting on May 6.
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According to the minutes, which were published yesterday, there is no reason to change the cash rate in the foreseeable future because the economy has been evolving in line with expectations.
That includes moderate business conditions, a sustained increase in dwelling investment, minimal inflationary pressure and spare capacity in the labour market.
“Given this outlook for the economy and the significant degree of monetary stimulus already in place to support economic activity, the board considered the current accommodative stance of policy was likely to be appropriate for some time yet,” the board said.
The Reserve Bank also revealed it regarded the housing market as an “area of strength” for the economy.
“Across Australia, housing price inflation had eased somewhat in recent months from the earlier rapid pace, with auction clearance rates edging back and housing loan approvals stabilising,” the board said.
“Other indicators, such as turnover, first home owner grants and loan approvals for new housing, remained consistent with strong demand for both established and new housing.”
Westpac chief economist Bill Evans said the Reserve Bank minutes seemed to confirm the bank’s prediction that the cash rate would remain on hold for at least another 12 months.
“The minutes of the monetary policy meeting … depict a central bank which appears to be somewhat more dovish in May than we saw in April,” he said.
