Domestic economy stronger but housing market returns to “subdued” status: RBA minutes

The Reserve Bank reverted to referring to the Australian housing market as “subdued” in its July 3 monetary policy meeting – a slightly less gloomy view of the market than in June, when it described the market as “having recently declined again”.

In May the RBA suggested the housing market was “subdued” and in April the RBA said it was “soft”.

The July 3 monetary policy minutes also acknowledge that retailing and housing are weak spots in the economy, which have contributed to keeping inflationary pressures contained despite evidence of stronger economic growth.

The RBA notes a stronger domestic economy, with positives being that the “pace of business credit had picked up noticeably”, that “household consumption grew strongly over the year to the March quarter, across both goods and service”, and that the “unemployment rate remained a little above 5% in May”.

But, in contrast, it said “indicators suggested that the housing market remained subdued”.

“Dwelling activity was likely to have fallen further in recent months, and indicators generally suggested that activity would remain relatively weak in the near term.

“Notwithstanding an apparent tick-up in June, dwelling prices were around 6% lower than in early 2011, with the largest falls in Melbourne and Brisbane.

“Household credit continued to grow at around the pace of the past year (broadly in line with incomes). Interest rates on housing loans were around 50 basis points below their 15-year average,” says the RBA.

The minute also say that some of the recent tensions in global financial markets have eased and that locally there had been no sign of dislocation in Australian financial markets.

“Following the June cash rate announcement, most lenders reduced their standard variable housing rates by around 20 basis points.

“As a result, the average interest rate on outstanding housing loans was about 60 basis points below the post-1996 average, while rates on small and large business loans were 50 and 75 basis points lower,” says the RBA.

The RBA concludes by saying: "Members continued to view it as appropriate for interest rates to be a little below average given evidence of slower global growth and the low rate of inflation in Australia.

"But with a material easing in monetary policy having occurred over the preceding six months or so, and with recent signs that the domestic economy had a little more momentum than had earlier been indicated, members saw no need for any further adjustment to the cash rate at this meeting."

Click here for the full minutes.

Following the release of the minutes, Westpac chief economist Bill Evans says the next rate cuts are now likely to be delayed until the December quarter.