The RBA Minutes are out and the key highlight is the bank is not unusually alarmed by the increase in housing prices in Australia – and hardly at all Sydney.
Here is the key paragraph:
Activity in the housing market had remained strong. Housing prices had continued to increase strongly in Sydney and at a solid pace in Melbourne. In other capital cities, trends had been more mixed and annual increases in capital city housing prices (excluding Sydney and Melbourne) had averaged about 3 per cent. Growth of dwelling investment was estimated to have picked up in the December quarter and was expected to remain at a high level in the near term. While credit had continued to grow a little faster than incomes, household leverage had not increased significantly and the Bank would continue to work with other regulators to assess and contain risks that might arise from the housing market.
There is no smoking gun for anyone who thought the RBA might stop its easing cycle because of the recent surge in prices.
Indeed, the RBA explicitly told the market in the Minutes why it held rates steady in March.
They said rates had been “accommodative” for a while now and that the February cut along with the fall in the Aussie dollar “would provide some further support to the economy.”
This meant they have time to wait and see what happens next and how the economy reacts to the dual stimulus of rates and a lower Aussie dollar.
Here’s the first half of the final paragraph of the Minutes:
In considering whether or not to reduce the cash rate further at this meeting, members saw benefit in allowing some time for the structure of interest rates and the economy to adjust to the earlier change. They also saw advantages in receiving more data to indicate whether or not the economy was on the previously forecast path. Further, they noted the greater degree of uncertainty about the behaviour of borrowers and savers in a world of very low interest rates.
This last part is super-important for people like me who see the risk of rates heading to 1.75% or 1.5% as high. While the RBA recognises “that further easing over the period ahead may be appropriate to foster sustainable growth in demand” it is clearly pointing to the impact of super-low rates on savers.
That suggests the RBA sees 2% – that’s one more cut – as the lower boundary before any further cuts hurt the economy as much as help it.