RBA tipped to leave rates on hold at next week’s meeting

The RBA is set to keep interest rates on hold, rather than risk another cut. Source: Getty Images

THE Reserve Bank of Australia will likely leave interest rates on hold at next week’s policy meeting, fearing a further cut could put a rocket under too-hot property prices.

With the country’s home prices already at record-high levels, there are signs of renewed upwards momentum following this month’s surprise cut in the benchmark cash rate to an all-time-low of 2.25 per cent.

Housing auctions last weekend in Sydney saw a near-record 86 per cent of all properties sold, compared with about 83 per cent a week earlier.

That gives the central bank — which has repeatedly warned against too much speculative property lending — further cause for worry, at a time when the economy remains fragile as a mining boom fades.

Nationally, home prices have climbed 22 per cent since mid-2012. Melbourne and Sydney prices have risen by more than 50 per cent since 2009. A sudden crash in home prices could undo much of the hard work interest rates have done to modestly spur non-mining sectors of the economy, such as retail.

The RBA debated the problem of frothy house prices on February 3, according to minutes of their last meeting, before deciding to cut rates for the first time in more than a year and a half. The nine member board was divided on the wisdom of a cut.

Australia’s banking regulator has recently stepped into the debate, saying it would step up its monitoring of investment-housing loans and may implement lending curbs if the credit tap continues gushing.

Since those warnings, data shows that the scale of speculative buying hasn’t diminished. If anything, it’s encouraged speculators to jump in while the going is good.

While interest-rate swap markets have a 50 per cent chance of a rate cut in March priced in, the central bank will be cautious about cutting while the impact of regulation that may or not be brought in remains unknown. It makes better sense to pause for a while and consider more data.

News of a jump in unemployment to 6.4 per cent in January, its highest level in more than 12 years, is likewise an unlikely trigger for a second consecutive rate cut. True, joblessness is rising, but averaged over a number of months it’s still only a gradual climb.

Next week the RBA is likely to signal its intention to cut rates again — just not immediately.

After all, much more needs to be done to lift Australia’s economy out from the rubble at a time when prices for the nation’s commodity exports have also fallen dramatically.

Read more about financial outsourcing services

This news is reprinted from http://www.theaustralian.com.au/business/economics/rba-tipped-to-leave-rates-on-hold-at-next-weeks-meeting/story-e6frg926-1227237306258