The Reserve Bank has tipped a period of stability in interest rates, although it says the housing market is helping to increase investment in the non-mining sector – which has been a source of hesitation for the central bank.
“Domestically, an important source of uncertainty continues to be the speed and timing of the anticipated recovery in non-mining business investment,” the Reserve Bank said in its Statement of Monetary Policy on Friday.
However, the momentum in the housing market is having a positive effect on consumer consumption which will eventually lead to a pickup in business investment.
“The low level of interest rates and strong population growth are expected to continue to underpin rising housing activity and housing prices. These, in turn, are expected to support consumption through their effect on household incomes and household wealth. In time, a pick-up in household demand should support higher business investment in the non-mining sector,” the bank said.
Although recent reports suggest that the housing market may be beginning to stagnate, the Reserve Bank expects growth in the housing market to continue its momentum into next year, particularly for investors.
“Strong growth in dwelling investment is likely to continue, as evidenced by the high level of building approvals and strength in other forward-looking indicators. Conditions in the established housing market also remain strong. Housing price growth has slowed from the rapid pace of late last year, but is still quite high in Sydney and Melbourne. While growth of housing credit for owner-occupiers is only a little above that of income, investor credit continues to grow at a noticeably faster rate.”
The Australian dollar still remains high, however, despite the recent depreciation of the exchange rate. As a result, the exchange rate is offering less assistance than would normally be expected in achieving balanced growth in the economy. This means the Reserve Bank is likely to keep rates on hold for the time being.
