May 2014 - Interest Rate Announcement

• Rates remain on hold in a mixed economic landscape
• Unemployment rate falls as other factors continue to improve gradually
• House price growth moderating
• Outlook remains for steady rates as budget impact looms

The Reserve Bank has decided to again leave official interest rates on hold at its regular monthly meeting today. Rates have now been steady since the decision by the Bank in August last year to cut rates to a 60 year low of 2.5 percent.

The national economy continues to provide positive signs of gradual overall improvement although outcomes remains mixed between regions and sectors.

The national monthly seasonally-adjusted unemployment rate fell from 6.1 percent to 5.8 percent over March - the first drop in the rate for 6 months. The falling unemployment rate translated into jobs growth of 18,100 over the month.

Steady rises continue in retail sales and construction with export activity also improving. The stockmarket continues to rise with the dollar now settling after its recent upward trajectory.

Recent inflation data reported that prices growth declined over the March quarter and remains well within the Reserve Banks preferred range.

Although official rates remain on hold, mortgage costs continue to fall as competition amongst banks for market share intensifies in a generally positive environment for home buyer activity in most housing markets.

House price growth however as expected is generally moderating as the significant stimulatory impact on housing markets of last year’s rate cuts diminishes.

With the upcoming federal budget expected to tightly constrain fiscal policy, consequential downstream impacts on economic activity is another factor indicating that the near term- outlook for interest rate settings remains neutral.

The Reserve Bank has predictably decided to leave official interest rates at current settings over May. Although recent economic data has been generally positive with falling unemployment and steady jobs growth reflecting improvements in retail sales, construction and exports, outcomes remain mixed between states and regions.

Although positive signs continue to emerge on the economy overall, official interest rates are likely to remain on hold for the foreseeable future, particularly with a number of states continuing to report subdued job markets.

The constraints on fiscal policy from the upcoming federal budget together with low and falling inflation, weak incomes growth and moderating house price growth will also act to keep the Bank on the sidelines.”, says Dr Andrew Wilson Senior Economist for Australian Property Monitors.

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