The Reserve Bank of Australia (RBA) has released the minutes from its August meeting at which the cash rate remained unchanged at 1.00%, revealing that while the central bank remains open to further rate cuts, it plans to track the global and domestic economies before taking further action.
According to the RBA board, the evidence that the housing market was showing signs of a turnaround strengthened in July. They noted that in Sydney and Melbourne, housing prices had increased and auction clearance rates rose yet further.
Even outside the two largest cities, housing market conditions showed tentative signs of improvement, with prices rising in Brisbane and the pace of decline in Perth having slowed.
However, the members expect dwelling investment to decline further in the near term, with “timely information from liaison contacts” communicating that increased buyer interest had yet to translate into more housing sales.
The members of the board seemed to be satisfied with the portion of the rate reductions banks had passed through to their borrowers, saying it was “broadly consistent” with the combined June and July cash rate cuts.
Further, the central bank noted that the “degree of pass-through” was comparable to that observed over the preceding decade.
The board also took into account that housing credit growth had declined in June, for both owner-occupiers and investors. Conversely, loan approvals picked up in June, which was the first sizeable increase for investors in some time, reinforcing the sentiment that the housing market had stabilised over recent months.
Loan approvals to property developers remained subdued and access to finance for small businesses continued to be tight.
According to the RBA, “[It’s] reasonable to expect that an extended period of low interest rates would be required in Australia to make sustained progress towards full employment and achieve more assured progress towards the inflation target.”
However, having eased monetary policy in both June and July, the board opted to wait and watch trends develop before changing the rate further. The next cash rate decision will come in two weeks’ time on September 3.
