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Australia keeps rates on hold, warns on housing

Australia’s central bank held interest rates at a record low 1.50 percent for a seventh straight meeting Tuesday as it juggles a booming property market with mixed economic data.

 

The Reserve Bank of Australia slashed rates 300 basis points between November 2011 and August last year to support non-resources industries as the economy transitions out of a mining investment boom. It has remained on hold since then.

In a statement, Reserve Bank governor Philip Lowe said the board « judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time ».

Economists expect a better reading on the bank’s intentions moving forward once it considers first quarter inflation data due later this month, potentially making the board’s May meeting more interesting.

Inflation remains below the Reserve Bank’s 2-3 percent target band, while the jobless rate has edged up to 5.9 percent since the bank last met.

At the same times wages growth remains weak, eroding consumers’ purchasing power. Data this week showed continued softness in retail sales.

The central bank is juggling all this alongside surging property prices, particularly in Sydney and Melbourne, amid fears the market is entering bubble territory.

This is widely seen as why it has held off on further rate cuts owing to worries it would stoke more debt-funded speculation and push the cost of housing even higher.

Lowe noted that « growth in household borrowing, largely to purchase housing, continues to outpace growth in household income ».

« Lenders need to ensure that the serviceability metrics that they use are appropriate for current conditions, » he added.

« A reduced reliance on interest-only housing loans in the Australian market would also be a positive development. »

The decision to stay on hold was widely expected by economists, and the Australian dollar was largely unchanged at 75.93 US cents after the statement.

Lowe noted the economy was « continuing its transition following the end of the mining investment boom ».

« Recent data are consistent with ongoing moderate growth, » he said.

 

AFP

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