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Cash rate could fall further despite Sydney boom

By Nick Bendel
Bronte
15

Reserve Bank deliberations suggest another interest rate cut may be coming in the months ahead.

Board members made a clear decision at the monthly meeting on 5 May to leave the door open to future rate cuts, according to the minutes, which were released earlier this week.

The Reserve Bank cut the official cash rate by 25 basis points in February and then by the same amount in May, bringing the official cash rate down to two per cent.

“Members agreed that, as at the time of the reduction in the cash rate in February, the statement communicating the decision would not contain any guidance on the future path of monetary policy,” the minutes revealed.

“Members did not see this as limiting the board's scope for any action that might be appropriate at future meetings.”

One thing the minutes make clear is that the board had already decided ahead of this month’s meeting that it had to cut rates – the only question was whether to do so in May or June.

Board members also discussed several other factors that suggest another rate cut might be coming, including a sluggish local economy.

Compared to earlier forecasts, growth and unemployment statistics are now likely to take longer to improve, according to the minutes.

At the same time, inflation is also expected to be slightly lower than previously forecast, giving the board scope to cut rates.

One argument against a third rate cut in 2015 would be the fear that this might foster imbalances in the housing market.

However, while board members expressed concern about “very strong” price growth in Sydney and “strong” growth in Melbourne, they saw “much more muted” trends in other capital cities.

They also noted the most recent data, which showed that there had been no increase in housing credit in recent months, either for investment or owner-occupancy purposes.

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