The Reserve Bank of Australia’s latest decision to keep monetary policy on hold was accompanied by a more positive outlook on growth, but one that contrasted with deepening housing risk, the minutes of the latest meetings showed Tuesday.
“Recent data continued to suggest that there had been a build-up of risks associated with the housing market. In some markets, conditions had been strong and prices were rising briskly, although in other markets prices were declining,” the official transcript of the March 7 RBA meeting revealed Tuesday.
The central bank’s overnight cash rate has stood at a record low of 1.5% since August. Some analysts had speculated the RBA would consider easing policy further in the wake of a disappointing third quarter GDP result. However, policymakers were confidence that the third quarter contraction was only temporary.
They were proven correct earlier this month when the federal statistics agency said GDP growth rebounded 1.1% in the final quarter of 2016.
However, others say policymakers are hesitant to lower interest rates to avoid fanning an overheated property market, which appears to have run even hotter in the latter half of 2016 Home prices in Sydney and Melbourne especially skyrocketed in 2016 thanks to a steady rise in investment.
At the same time, Australia’s inflation rate is running well below the central bank’s target range, and has done so for the better part of three years. The fine balance between enabling looser monetary policy and keeping systemic housing risks at bay remains a key challenge for policymakers.