RBA says rates are supporting growth

The RBA has indicated it will keep rates on hold, possibly until next year, allowing two recent cuts to support growth.

The RBA says the economy is growing strongly.

The Reserve Bank of Australia has indicated it will keep interest rates on hold, possibly until next year, allowing two interest rate cuts since May to support growth.

Interest rate-sensitive sectors of the economy, such as housing construction, are being helped by record low interest rates, while the economy is growing strongly, the RBA said in minutes of its September 6 board meeting.

The RBA left interest rates on hold at 1.50 per cent at the meeting.

“Having eased monetary policy at its May and August meetings, the board judged that the current stance of monetary policy was consistent with sustainable growth in the Australian economy and achieving the inflation target over time,” it said.

The comments come after Australia posted GDP growth of 3.3 per cent on-year in the second quarter, completing 25 years since the last recession.

The economy has been transitioning away from mining-led growth for some years as commodity prices have weakened, prompting a collapse in mining investment. It is now growing solidly, fanned by services and rise mining and gas exports. RBA officials said recently that the end of the adjustment in the economy was nearing an end.

Recent data suggested growth had been around estimates of potential growth over the first half of the 2016, despite further large falls in business investment, the RBA said.

Still, inflation remains entrenched below the RBA’s desired 2-3 per cent inflation target, meaning interest rates are still more likely to fall further next year. It expects wages to be flat for some time.

The RBA appeared relaxed around risks in the housing sector, saying that while house prices have risen modestly, supply of housing is strong, particularly for apartments.

House prices have risen strongly in recent years fuelled by falling interest rates and investor lending. The banking regulator has moved to stymie the growth by tightening bank lending standards.

Dow Jones Newswires