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Australia Keeps Key Rate Unchanged Amid Housing Market Slowdown

Australia Keeps Key Rate Unchanged Amid Housing Market Slowdown© Bloomberg. A security guard walks towards a residential construction site in the suburb of Wolli Creek in Sydney, Australia, on Sunday, June 17, 2018. Australia is riding out a huge gamble on property. The bet: 27 years of recession-free economic growth—during which Sydney home prices surged fivefold—would continue unabated and allow borrowers to keep servicing their debt. Photographer: Lisa Maree Williams/Bloomberg

(Bloomberg) — The Reserve Bank of Australia left its key rate unchanged at a record low Tuesday as it gauges the impact of a housing market slowdown on the nation’s economy.

Governor Philip Lowe and his board left the cash at 1.5 percent, as expected and as they have since August 2016. “Growth in household income remains low, debt levels are high and some asset prices have declined,” he said in a statement.

Key Insights

  • Lowe noted that credit conditions are tighter for borrowers than they have been “for some time,” reflecting a clampdown by regulators and nervousness among lenders in the midst of an inquiry into the behavior of banks.
  • Australian house prices recorded their biggest monthly drop since the global financial crisis in November, reflecting the lending curbs and buyers waiting to see how far the market falls. For the RBA, the risk is whether this prompts households to cut consumption — a key driver of the economy — and boost savings.
  • On the impact of the U.S.-China trade tensions on the international outlook, Lowe said: “The global economic expansion is continuing and unemployment rates in most advanced economies are low. There are, however, some signs of a slowdown in global trade, partly stemming from ongoing trade tensions.”
  • The RBA chief kept his commentary on the currency pretty much unchanged. The has recovered some ground in the past three weeks, but is still down 9.2 percent from its late January peak.

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  • A weakening housing market adds a new variable to the RBA’s policy framework as it threatens household confidence and spending. It has been using low rates to accelerate economic growth and tighten the labor market to such an extent that employers will need to offer higher wages to secure workers; that in turn will boost household incomes and inflation and should lay the ground for the first rate increase since 2010.

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Source: Investing.com

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