The Reserve Bank left interest rates at record lows for a third straight month but indicated it has room to make further cuts if necessary.
After a meeting of the central bank’s board, the RBA left its cash rate at 3 per cent, a 49-year low – the same rate that has applied since its last cut in April, which was made in response to a slowdown in the economy.
”It looks as if the RBA is on hold for the longer term,” said Matt Robinson of Moody’s Economy.com. ”There is no real need or desire for further easing.”
– Read commentary by Mal Maiden and Peter Martin.
The RBA has slashed 425 basis points from interest rates – lowering them from 7.25 per cent to 3 per cent – since September in an effort to shield Australia from the worst effects of the global recession.
”The global economy is stabilising, after a sharp contraction in demand during the December and March quarters,” said RBA Governor Glenn Stevens, in an accompanying statement.
”Downside risks to the outlook have diminished, with conditions in global financial markets improving this year and action to strengthen balance sheets of key financial institutions under way,” he said. ”Growth in China has strengthened considerably, which is having an impact on other economies in the region, including Australia.”
The Australian dollar bounced was little changed in recent trading at 79.72 US cents from 79.68 US cents, just prior to the release. Stocks were little changed before ending the day down 0.4 per cent.
Qualified optimism
Mr Stevens also detailed areas where the local economy is improving.
”A pick-up in housing credit demand suggests stronger dwelling activity is likely later in the year,” he said.
”House prices are tending to rise. Business borrowing, on the other hand, has been declining, as companies postpone investment plans and seek to reduce leverage in an environment of tighter lending standards. Large firms have had good access to equity capital, which is assisting in strengthening their financial structures.”
There are other reasons for optimism, the RBA said, although corporate investment remains an area of weakness.
”Monetary policy has been eased significantly. Market and mortgage rates are at very low levels by historical standards, despite recent small increases. Business loan rates are below average,” Mr Stevens said. ”The effects of these changes will still be coming through for some time yet. Fiscal measures are also providing considerable support for demand.”
Tags: Hodges Real Estate, Interest rate cut, Rate Cut, Reserve Bank, Residential property
