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WRAPUP 1-Australia plots steady rate course as housing revives
March 4, 2014 / 4:10 AM / 4 years ago

WRAPUP 1-Australia plots steady rate course as housing revives

* RBA keeps rates at 2.5 percent for 7th month, sees stable outlook

* Pick up in housing, consumption and exports balance mining slowdown

* GDP data due Wednesday expected to show economy growing at 2.6 pct

By Wayne Cole

SYDNEY, March 4 (Reuters) - Australia’s central bank kept rates at record lows on Tuesday and said the outlook was for more of the same, citing signs past cuts were working to boost housing and consumption.

The Reserve Bank of Australia (RBA) acknowledged that the transition away from mining investment was proving difficult and unemployment had further yet to rise. But it also saw reason for optimism.

“Recent information suggests slightly firmer consumer demand and foreshadows a solid expansion in housing construction,” RBA Governor Glenn Stevens said in a brief statement after the bank’s March policy meeting.

“Some indicators of business conditions and confidence have shown improvement and exports are rising.” he added. “Over time, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate.”

The decision comes a day before the resource-rich country is expected to report economic growth remained subpar last quarter, though that would still extend a remarkable run of 22 years without recession.

The central bank was considered almost certain to hold rates at 2.5 percent, where they have been since a cut last August. Just a month ago the bank all but closed the door on further easing saying evidence of a pick-up in housing, consumption and inflation argued for a period of steady policy.

A Reuters poll of 19 economists had found all expected a steady outcome, but were divided on the direction of the next move with five tipping a cut and 13 looking for a hike.

The market reaction was thus muted, though the local dollar fell slightly to $0.8920 when Stevens noted that it was still high by historical standards.

The futures market <0#YIB:> implies only around a one-in-four chance of a further easing, largely on concerns a slowdown in mining investment will leave a hole in growth over the next year or so that will be hard to fill.


There was more evidence of the stimulatory effect of low rates on Tuesday as data showed approvals to build new homes surged 6.8 percent in January to their highest in over a decade.

Approvals were up almost 35 percent on the same period last year and will surely lead to a solid expansion in construction. That’s important as historically a typical upswing in home building can add a couple of percentage points to growth.

Matthew Hassan, an economist at Westpac, noted approvals were running at an annual pace of 210,000, the second highest on record and well above estimates of underlying demand of around 172,000 a year.

“So new construction will finally start to redress the chronic shortfall of housing stock that has emerged over the last decade,” he said. “New dwelling investment may be set for strong double-digit annual growth in 2014.”

Figures for gross domestic product (GDP) are due out on Wednesday which is expected to show the economy expanded by 0.7 percent in the fourth quarter of last year, compared to the previous quarter.

Growth for the year is seen picking up to 2.6 percent, from 2.3 percent, thanks chiefly to strength in exports as the mountain of money spent on mines boosts production.

The Australian Bureau of Statistics estimates the country ran its first trade surplus in almost two years last quarter, while net exports added 0.6 percentage points to growth.

A lot of this output is headed for China, which has a seemingly inexhaustible appetite for resources. Goods exports to China hit a record A$27.2 billion in the fourth quarter of last year, an increase of 45 percent on the same period in 2012. (Reporting by Wayne Cole; Editing by Eric Meijer)

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