July Month in Review: Rates remain on hold

By the resi financial blog team, 02 July 2014

Financial review June 2014

For the 10th consecutive month, the Reserve Bank of Australia has left rates on hold at 2.5 per cent, a decision that was widely expected by economists.

At its July board meeting, the RBA stated that while the economy was improving, and there had been moderate growth, it would be some time before unemployment falls considerably.

However, there has been improvement in indicators for the labour market and a noticeable decline in wages growth. The RBA states if these and other domestic costs remain contained, then inflation should remain consistent with its target of 2 to 3 per cent over the next one to two years, even with lower exchange rate levels.

The strong exchange rate is one of the RBA’s main concerns, and it remains high by historical standards, especially “given the declines in key commodity prices” and is not providing the hoped-for assistance in achieving balanced growth in the economy.

The firmer growth within the economy has been attributed to the strong increases in resource exports as new capacity comes on-stream. But the RBA expects smaller increases in such exports will be likely in coming months.

Global growth is continuing at a moderate pace, a situation helped by firmer conditions in advanced countries. “China’s growth slowed a little earlier in the year but remains generally in line with policymakers’ objectives,” RBA governor Glenn Stephens states. “Commodity prices in historical terms remain high but some of those, which are important to Australia have declined.”

Overall, financial conditions remain very accommodative. Market volatility is low and savers are continuing to seek higher returns in response to the low rates on traditional cash instruments.

Property prices are softening but demand remains strong as evidenced in the volume of sales and clearance rates around the country. The continuing low rates should provide potential property purchasers with the confidence to enter the market, especially as expectations are for rates to remain on hold until at least next year.

Categories: Month in review July 2014, RBA Update