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RBA meeting: Rates on hold but ‘could fall later this year’

rba reserve bank interest rates cash rate

The RBA left the cash rate unchanged at 1.5% at its March meeting today. Although the cash rate remains unchanged since August 2016, there is a growing possibility that rates could fall later this year.

The strong labour market report for January was likely a key factor in keeping rates on hold, however in balance, wages have grown at a consistently low rate growth and inflation remains stubbornly below the target range.

The sharp slowdown in residential construction activity and relatively benign retail trade figures may be hinting that weak housing market conditions are already spilling over to the broader economy.

No doubt the RBA are tracking housing market conditions very closely, watching for any further deterioration that might signal a dent to consumer spirits, resulting in less spending, more saving and a further pull back in residential construction activity.

CoreLogic reported another broad based decline in dwelling values in February, down 0.7% nationally, however the good news was that the rate of decline has eased over the past two months and housing affordability is showing a consistent improvement across most housing markets.

The performance of the housing sector over coming months should provide some clues about future monetary policy decisions.

A further deterioration in the pace or geographic scope of declines could tip the balance in favour of a rate cut later this year as the RBA becomes wary of the wealth effect moving into reverse.

Written by Tim Lawless

Tim Lawless

Tim Lawless is head of research at CoreLogic Asia Pacific.

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