The majority of economists agree that the Reserve Bank of Australia (RBA) will leave rates on hold for sometime to assess the stability of the Australian economy. This will give them an indication of how last month’s rate cut and newly introduced Federal Budget have impacted.
Leaving this month’s rates on hold is attributed to inflation rates across the globe being below the central bank’s target. Growth in the Chinese economy eased last quarter, the US moderated, Japan had modest growth and the European region is slowly recovering.
Iron ore, coal and oil prices are continuing to rebound from recent lows. Demand for steel in China has declined. This is expected to continue given that Chinese land sales and the property market is continuing to weaken.
In Australia, the established housing market remained strong in Sydney and Melbourne, but housing price growth declined in other regions. However, data suggests that dwelling investment remained strong over the March quarter. This was supported by low interest rates and higher than average population growth. Future indicators such as residential building and loan approvals suggest that dwelling investment will continue to be strong over the coming quarters.
The RBA board discussed the risk of low rates causing imbalances in the housing market. The board will continue to work with regulators to contain housing market risks.
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