March 2014 RBA Update: Month in review

By the resi financial blog team, 04 March 2014

RBA update March 2014

Despite property prices rising significantly over the past year, the Reserve Bank of Australia decided to keep the cash rate on hold at 2.5 per cent at its March meeting. This is the sixth straight meeting that rates have remained unchanged and there was no sign from the RBA that rates would change any time soon.

At the meeting, RBA governor Glenn Stevens, said growth in the global economy was still a bit below trend in 2013 but there were reasonable prospects of a pick-up this year. "The United States economy, while affected by adverse weather, continues its expansion and the euro area has begun a recovery from recession, albeit a fragile one," Mr Stevens said. "Japan has recorded a significant pick-up in growth, while China's growth remains in line with policymakers' objectives. Commodity prices have declined from their peaks but in historical terms remain high."

The RBA is still concerned about the lack of business investment and with the federal government signalling cuts in the upcoming budget, it's likely rates will be left on hold to cushion the effects.

Unemployment remains a concern and is expected to continue to edge higher. Mr Stevens said the demand for labour has remained weak and growth in wages has declined noticeably."If domestic costs remain contained, some moderation in the growth of prices for non-traded goods could be expected over time, which should keep inflation consistent with the target, even with lower levels of the exchange rate," he said.

Meanwhile, resources sector investment spending is set to decline significantly and it is unclear whether other sectors at this stage are likely to step in.

If you are considering investing in property, now is a good time with rates remaining on hold and no clear indication of the next direction, although the consensus among economists is for an increase. If mortgage rates remain low, housing market conditions should stay positive. 

Categories: Resi Reporter, Resi Reporter March 2014