Economic data received by the Reserve Bank of Australia (RBA) over the last two months suggests that monetary policy needs to remain stable, and in a holding pattern in order to allow the fog shrouding the economy to lift.
While global economic conditions are showing signs of development as expected, growth for the Australian domestic economy was marginally below trend in the second half of 2013.
At the same time, the labour market has continued to expand with an increase of .6 percent, although underlying conditions within the labour market remain soft. Employment growth has slowed from an average increase of 20,600 jobs per month during 2012, to a decrease of 600 jobs per month during 2013. It is anticipated that further job losses, with employement cuts being made in several business sectors, such as the airline, car and food industries, will create additional pressure on the labour market with unemployment continuing to climb during 2014.
Monetary policy does, however, seem to be having a positive impact on consumption, home investment, the majority of business and exports.
In the housing market, home prices increased and turnover has moved to just below average. Employment in construction is rising, and conditions are expected to improve further to support new home construction actively over the coming quarter. Softness in commercial construction means that there is adequate labour to provide support for home construction growth. It was also noted that credit for homes is increasing with investors leading the way in home loan approval.
Overall, economists are predicting that the cash rate will remain on hold at 2.5 percent until the fog surrounding the Australian economy lifts so that the RBA can ensure a safe landing, before refuelling and then allowing the cash rate to taking-off on its next flight.
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Written by eChoice