* RBA keeps rates at 2.5 percent for 8th month, outlook
* Pick up in housing, consumption and exports balance mining
* Surge in home prices, investment borrowing being watched
By Wayne Cole
SYDNEY, April 1 Australia's central bank kept
rates at record lows on Tuesday, saying policy would remain
stimulative in order to boost demand and offset the drag from a
cooling mining boom.
The Reserve Bank of Australia (RBA) conceded that
unemployment was likely to rise a little further, but pointed to
a pick up in consumer spending and a robust expansion in home
building as reasons for optimism.
"Looking ahead, continued accommodative monetary policy
should provide support to demand, and help growth to strengthen
over time," RBA Governor Glenn Stevens said in a brief statement
after the bank's April policy meeting.
"On present indications, the most prudent course is likely to
be a period of stability in interest rates."
The central bank had been considered certain to hold rates at
2.5 percent, where they have been since a cut last August. In
February, the bank all but closed the door on further easing
given evidence past cuts were percolating through the economy.
A Reuters poll of 20 economists had found all expected a
steady outcome this week, while most suspected the next move
would be upward, albeit not until 2015.
The futures market <0#YIB:> implies almost no chance of a
further easing, and has priced in a small probability of a rate
rise late this year.
The market reaction was choppy with the local dollar first
rising to a four-month peak at $0.9310 before lapsing
back to $0.9265.
Stevens noted that the currency was still high by historical
standards and its recent rise would not assist the economy, but
stopped short of outright talking it down.
"It's a bit of tacit acknowledgment that there's not much
the RBA can do about the exchange rate," said Su-Lin Ong, a
senior economist at RBC Capital Markets.
"To have said absolutely nothing new on the exchange rate
would have been a green light for it to go a lot higher, but
adding that small line has just sort of capped it for now."
BORROWING BINGE A CONCERN
There was further evidence on Tuesday that low mortgage
rates were stimulating the housing market, perhaps too much.
Figures from property consultant RPData-Rismark showed home
prices across Australia's major cities jumped 2.3 percent in
March, from the previous month. That left them a hefty 10.6
percent higher than March last year, the fastest pace in almost
Rising home prices have so far been considered by
policymakers as necessary to encourage a much-needed revival in
home building, and signs are it is working.
Approvals to build new homes have taken off in recent months
and are now growing at an annual pace of almost 35 percent.
"We are going to have a boom in residential construction
over the next couple of years. That is very much on track,"
Stevens said just last week.
However, the bank has been less sanguine about a rush of
borrowing to buy homes as investments, with the value of new
loans granted climbing to a record peak at the end of last year.
Officials have taken to playing the role of the scold,
warning investors that double-digit prices gains cannot last.
This is a tactic that has had some success in the past, notably
during the last really big price boom in the early 2000's.
"Over the long term, I don't believe such a strong pace of
growth can be sustained - we expect housing market conditions to
cool down as the year progresses," said RP Data research
director Tim Lawless of the latest rise in home prices.
"If the pace of capital gains doesn't slow, we may see
higher interest rates realised much earlier than previously
expected," he added, ominously.
(Reporting by Wayne Cole; Editing by Eric Meijer & Kim Coghill)