Australia's central bank holds rates, Ukraine a new uncertainty
SYDNEY :Australia's central bank on Tuesday kept interest
rates at a record low and cited the war in Ukraine as a major new source of
uncertainty as it stressed patience on tightening policy.
Wrapping up its March policy meeting, the Reserve Bank of
Australia (RBA) held rates at 0.1per cent and reiterated it was prepared to wait
for a long-desired pick up in wages growth before acting to tighten policy.
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"The Board is prepared to be patient as it monitors how
the various factors affecting inflation in Australia evolve," said RBA
Governor Philip Lowe in a brief statement. "The war in Ukraine is a major
new source of uncertainty."
Lowe sounded upbeat on the domestic economy, noting strength
in consumer spending, business investment and the labour market.
Figures for fourth-quarter GDP due on Wednesday are expected
to show a rapid rebound in growth of at least 3per cent as household demand
surged back from coronavirus lockdowns.
That recovery shows every sign of continuing with retail
sales jumping in January and banks reporting healthy spending on their cards
through February.
Unemployment has dropped to a 13-year low of 4.2per cent and
looks likely to fall under 4per cent for the first time since the 1970s.
Lowe recently said it was plausible a first rate rise could come later this year if the economy continues to recover, while markets are pricing in a move as early as July.
The Russian invasion of Ukraine has added geopolitical uncertainty to that mix, and combined with massive floods in New South Wales and Queensland states to darken the public mood.
An ANZ survey of consumers out on Tuesday showed a sharp drop in sentiment last week, while inflation expectations ran at a seven-year high of 5.3per cent as petrol prices hit record peaks.
The heat also seems to be coming out of the housing market
with prices in Sydney falling in February for the first time in 17 months,
though the shift to the country continues apace.
Figures from property consultant CoreLogic showed national
home prices rose 0.6per cent in February, almost half the 1.1per cent jump seen
in January. Values in Sydney dipped 0.1per cent and Melbourne went flat, hurt
by a rush of supply and higher mortgage rates.
"Price gains in 2021 nationally were extraordinary and
a correction lower is a natural response," said Gareth Aird, head of
Australian economics at CBA. "This cycle looks to have run its course in
Sydney and Melbourne."
He also expects the RBA will start raising rates in June
should inflation for the first quarter be as high as feared, which will further
pressure the market.
"We estimate there are over one million home borrowers
who have never experienced an increase in mortgage rates," added Aird.
"This means that we expect a gradual and a shallow rate hike
trajectory."
As a result, he now expects capital city prices to be flat
this year, compared with a previous forecast of a 7per cent gain, and to fall
by 8per cent in 2023.
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