Australian Property News
Cash rate held at three per cent
Posted on Friday, August 07 2009 at 7:25 PM
Due to strong economic conditions, the official cash rate remains unchanged at the 49-year low of three per cent.
For the fourth consecutive month, the decision to leave the rate unchanged is because "the global economy is stabilising after an earlier sharp contraction in demand", according to this week's statement of Reserve Bank of Australia (RBA) Governor Glenn Stevens.
Stevens stated how the downside risks to the global outlook have diminished but not disappeared, but Australia's economic conditions in both consumer spending and exports have been stronger than expected.
"Measures of confidence have recovered a good deal of ground. This suggests that the risk of a severe contraction in the Australian economy has abated," said Stevens.
"Stronger dwelling activity and public spending will start to provide more support to overall demand soon, and growth is likely to firm into 2010."
Inflation is gradually moderating, according to Stevens, along with effects on weaker demand on prices and labour costs.
"Housing credit has been solid and dwelling prices have risen over recent months," said Stevens.
However business investment borrowing will be slower to recover, according to Stevens, due to tighter lending criteria.
Westpac chief economist Bill Evans said there are positive signs from the recent Reserve Bank statement.
He said it's encouraging to hear Stevens mention positive developments on housing credit and rising house prices, with Stevens describing these rises as "having risen over recent months", as opposed to July's statement when he described it as "tending to rise".
Real Estate Institute of South Australia president Robin Turner agreed with Evans on the positive outlook from the Governor's statement.
"Unchanged interest rates are an indicator that the force of the global downturn has weakened and, although still fragile, our economy is strengthening," said Turner.
He said rising unemployment is still of major concern though and will be the major factor influencing future interest rate movements.
"The South Australian property market continues to prove its resilience with stable house prices and moderate growth in many areas across the state."
CommSec chief economist Craig James said, "You know that the domestic and global economies are doing better when the Reserve Bank stops talking about further rate cuts. The $64 million question is when will the RBA start removing the massive stimulus in place?"
He said, "It's easy to cut rates when you know the economy needs a kick along. It's a far harder task to judge that the economy has recovered sufficiently to allow rates to start lifting again to more 'normal' levels.
"But it's clear from the latest statement that the economy is not at that point yet. CommSec doesn't expect rate hikes to begin until 2010, but it is far too early to define a time for the first move."
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