The Reserve Bank held the official cashrate at 1.75% today.
The bank cut its cashrate by 25 basis points in November, the third 25-point cut last year.
Bank governor Graeme Wheeler’s biggest concern was whether housing supply would start to address the imbalance in that market, but he noted that prices had drifted back.
Mr Wheeler said:
“Macroeconomic indicators in advanced economies have been positive over the past 2 months. However, major challenges remain with ongoing surplus capacity in the global economy and extensive geopolitical uncertainty.
“Global headline inflation has increased, partly due to a rise in commodity prices, although oil prices have fallen more recently. Core inflation has been low & stable. Monetary policy is expected to remain stimulatory, but less so going forward, particularly in the US.
“The trade-weighted exchange rate has fallen 4% since February, partly in response to weaker dairy prices & reduced interest rate differentials. This is an encouraging move, but further depreciation is needed to achieve more balanced growth.
“Quarterly gdp was weaker than expected in the December quarter, but some of this is considered to be due to temporary factors. The growth outlook remains positive, supported by ongoing accommodative monetary policy, strong population growth and high levels of household spending & construction activity. Dairy prices have been volatile in recent auctions and uncertainty remains around future outcomes.
“House price inflation has moderated, and in part reflects loan:value ratio restrictions & tighter lending conditions. It is uncertain whether this moderation will be sustained, given the continued imbalance between supply & demand.
“Headline inflation has returned to the target band as past declines in oil prices dropped out of the annual calculation. Headline CPI will be variable over the next 12 months due to one-off effects from recent food & import price movements, but is expected to return to the midpoint of the target band over the medium term. Longer-term inflation expectations remain well anchored at around 2%.
“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.”
Attribution: Bank release.