The minutes of the Reserve Bank of Australia’s June meeting, released yesterday, reveal board members are concerned at the continued high rate of the Australian dollar, despite some economic conditions that would normally have brought it down.
However, board members also nodded to an “improving” dwelling investment market.
“The slower growth in residential investment was consistent with the broad-based decline in residential property inflation and transaction volumes over recent months. While there had been a number of reports that the extent of overbuilding had been greater in smaller cities, the decline in price inflation and downturn in sales were larger in the biggest cities, which had earlier experienced a more pronounced increase in prices and sales.
The board pointed to a range of indicators of housing construction, which confirmed a “significant recovery” was underway.
“Residential work done picked up strongly in the March quarter. Forward-looking indicators of new dwelling investment were at high levels relative to recent years, although building approvals had declined in recent months. In the established housing market, dwelling price growth had eased from the rapid pace seen in 2013 and auction clearance rates in Sydney and Melbourne had declined from the high rates that prevailed during much of 2013.”
The central bank’s minutes record that the interest rate is at an historic high, prompting some analysts to suggest a rate cut may be on the way, despite having been dismissed earlier in the year.
The US economy is now predicted to grow slower than previously expected and is not projected to have full employment until 2017, two years later than had been expected.
The fall in iron ore prices is another factor that is calling previous decisions into question.
At recent meetings, the board judged it was prudent to leave the cash rate unchanged at a record low 2.5%, as low interest rates were working to support demand.
And in the June minutes, the board concluded the current accommodative stance of policy was “likely to be appropriate for some time yet”.
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