RBA opens door to rates cut

The RBA came under fierce criticism for its decision not to cut the cash rate in April, particularly from the struggling housing and construction sectors.
The RBA came under fierce criticism for its decision not to cut the cash rate in April, particularly from the struggling housing and construction sectors.
  • Board is waiting for demand to slow before easing the cash rate
  • Economy performed worse than expected in the second half of last year
  • Outlook for dwelling prices hit developer confidence hard

THE Reserve Bank board has left the door open for cutting the cash rate when it next meets in May, a week before Treasurer Wayne Swan hands down his fifth Federal Budget.

Board members had lowered their assessment of the pace of growth since cutting 25 basis points from the cash rate in December, minutes from their April 3 meeting reveal.

The Reserve board opted to leave the cash rate on hold at 4.25%.

"If slower growth in demand could be expected to result in a more moderate inflation outcome, then a case could be made for a further easing of monetary policy," the minutes read.

Minutes from the meeting indicate the board thought it "prudent" to assess an array of new data before considering an adjustment to monetary policy.

"The board would have the opportunity at its next meeting to review the inflation outlook based on comprehensive new data on prices, as well as information on demand and output," the minutes read.

The board indicated the Australian economy had performed below expectation in the latter part of last year.

"The national accounts for the December quarter had shown an increase in real GDP of 0.4% in the quarter and 2.3% over the year, which were both lower than expected," the minutes read.

"Private domestic demand had grown strongly over the year, led by growth in mining investment.

"However growth in exports over 2011 had been weaker than expected, mainly because of lower coal exports, which, in turn, reflected a slower recovery from the floods in Queensland in early 2011, together with a slower take-up of new rail and port facilities in NSW and Queensland."

The RBA came under fierce criticism for its decision not to cut the cash rate in April, particularly from the struggling housing and construction sectors.

Board members considered the challenges facing these industries in arriving at their April decision.

"Members spent some time exploring reasons for the weakness in many of the indicators for housing turnover and building activity across Australia," the minutes read.

"They noted the apparent sensitivity of developers to the outlook for dwelling prices. New dwelling construction had fallen in the December quarter and there was little sign of a pick-up in building or loan approvals, though house prices had shown some signs of stabilising recently."

Topics:  cash rate developers dwelling approvals rba wayne swan

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