As expected, the Reserve Bank maintained its policy settings this week, including the targets of 10 basis points for the cash rate and the yield on the three-year Australian government bond.
Since the last Board meeting on March 2, the most important economic developments have been the surprise fall in the unemployment rate from 6.4 per cent in January to 5.8 per cent in February and reports of extraordinary strength in the national housing market.
The unemployment report prompted only a minor change in the Governor’s rhetoric from “the economy is still operating with considerable spare capacity and the unemployment rate remains higher than it has been for some years” (March) to “the economy is operating with considerable spare capacity and unemployment is still too high” (April).
Rising house prices were recognised. But the same approach we saw in March is adopted where lending standards are emphasised, “the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.”
Importantly, the Governor points out that “investor credit growth remains subdued”.
It is interesting that he did not comment, at this stage, on the recent trend for new lending for housing. In February new lending for investors lifted by 4.5 per cent in the month compared to -0.8 per cent for “upgraders” and -4 per cent for first home buyers.
In fact, the six-month growth rate for new investor finance approvals (31 per cent) is now above the upgraders’ rate (24 per cent) and first home buyers (30 per cent).
No doubt the Board will be watching these trends very closely.
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