Unexpected pick-up in new dwelling prices among reasons for November rate hold, but easing bias remains: RBA minutes

A higher-than-expected rise in inflation over the September quarter and an unexpected pick up in new dwelling prices were among the reason the RBA left the cash rate unchanged at 3.25% on Melbourne Cup Day, minutes of the November monetary policy meeting show.

However, an easing bias remains firmly in place, with RBA minutes revealing that members “considered that further easing may be appropriate in the period ahead” but preferred to hold, with “earlier rate cuts continuing to work their way through the economy and “further effects of these changes” yet to be observed.

HIA economist Geordan Murray tells Property Observer the statement that "new dwelling prices had picked up unexpectedly" refers to rising prices for new dwellings "in the context of a discussion of broader inflation".

"Therefore the comment is likely to be a reference to the 'new dwelling purchased by owner-occupier' item of CPI – a sub-component of the housing component of CPI," he says, reflecting "movements in the price of new homes (excluding land) and major improvements to existing homes".

"In the September 2012 quarter this component increased by only 0.9%t (up by 1.2% over the year). Similar movements were observed in the Producer Price Index for materials used in home building and the Project Home Price Index," the minutes say.

The minutes show that with "prices data for the September quarter slightly higher than expected and recent information on the world economy slightly more positive, the board judged that the stance of monetary policy was appropriate for the time being".

As with the post-decision statement by RBA governor Glenn Stevens on November 6, the minutes note signs of improvement in the housing market.

"There were tentative indications that housing activity may be reaching a turning point. Over recent months, the number of private residential building approvals had increased, as had dwelling prices, and auction clearance rates in Sydney and Melbourne had continued to rise," say the minutes.

The RBA also notes that most lenders have passed on 20 basis points in rate cuts to borrowers following the 25-basis-point cash rate cut decision in October, but also that lenders have a greater reliance on retail deposits.

"The average interest rate on outstanding housing loans was now about 75 basis points below the post-1996 average, while rates on small and large business loans were 75 and125 basis points below average. Competition for deposits remained strong, with deposit funding accounting for more than half of total bank funding," says the RBA.

The minutes record that the rise in new dwelling prices, grocery prices and health prices were partly offset by a "softening in the inflation of rents in the quarter and subdued rises in the prices of a range of market services".