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Australian Reserve Bank relaxed on interest rates

The Reserve Bank of Australia explained today why it’s skipped raising interest rates 3 times – and why it’s relaxed for the moment about the possibility of raising them.

The bank has left its target cash rate at 5.25% at each of its last 3 monthly meetings. New Zealand’s Reserve Bank, on the other hand, took its official cash rate to 6% on 29 July, the 3rd 25-point rise in 4 months.

The Australian Reserve Bank said developments in the housing market, and the associated growth in credit, had an important bearing on recent economic assessments.

“The overheating in the housing market last year carried the potential to destabilise the broader economy, the more so the longer it continued. There are clear indications, however, that the situation has now changed.

“After the rapid increases in house prices up to the end of last year, the available indicators suggest that prices declined in the first half of 2004. Auction clearance rates fell sharply around the turn of the year and have since remained well below average, suggesting vendors’ price expectations are not being met.

“There has also been an easing in the demand for housing finance, particularly from investors, though this will need to adjust further if the growth of housing credit is to return to a reasonably sustainable pace.

“Although, at this stage, the fall in house prices & slowing in finance have been relatively modest, these trends are indicative of an easing in demand pressures in the housing market after the overheated conditions that prevailed last year.”

The bank said that, in its policy deliberations over the past 3 months, its board had considered the improving international environment, the easing in pressures on the domestic housing market and the broader outlook for growth & inflation in Australia.

“The international situation is one in which interest rates in the major countries are likely to be increasing from their current abnormally low levels.

“Australian interest rates were never reduced to the extreme position adopted in a number of other countries, and there is no automatic reason that they will need to be moved up in line with the increases that are likely to occur overseas.

“On the other hand, with the policy stance in Australia still mildly accommodative, and the global economic environment likely to remain favourable to growth, it would be surprising if Australian interest rates did not have to increase further at some stage in the current expansion.”

The bank said the restraining influence of the exchange rate on inflation had reached its point of maximum effect, so the underlying inflation rate could be expected to start increasing soon. However, the bank also expected a rise in inflation to be gradual.

Website: Reserve Bank of Australia

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Australian CPI 2.5% in June year

If you get a little bit sceptical about how governments & economists measure inflation, seemingly taking out the important bits when it suits, try the Australian version for size.

The Reserve Bank of Australia issued tables today for the past 4 June years, year-end & quarterly, showing a range of consumer price index movements – all groups, or excluding volatile items – and 3 other measures: the private consumption chain price index, the weighted median & the trimmed mean.

Ignoring all the variations, the all-in Australian CPI rose 0.5% for the quarter (after rises of 0.9% in March, 0.5% in December, 0.6% in September and zero movement in the June 2003 quarter).

The annual CPI move rose from 2% in March to 2.5%. Australian inflation was above 3% for most of the June 2003 year.

Website: Reserve Bank of Australia CPI measures

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Australia holds to 5.25% cash rate

Australia’s Reserve Bank left its cash rate target at 5.25% when it met on Tuesday. That’s the rate it moved to on 3 December, when the bank increased its rate by 25 points.

New Zealand’s Reserve Bank raised its official cash rate by 25 points to 5.75% on 10 June, on top of 25-point rises on 29 January & 29 April.

The US Federal Reserve raised its federal funds rate target by 25 points on 30 June, to 1.25%, and its discount rate by 25 points to 2.25%. It had lowered these rates to 1% (funds rate) & 2% (discount rate) on 25 June 2003.

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New stamp duty & land tax rules on NSW

A mini-budget by New South Wales’ State Labor Government on Tuesday introduces a 2.25% vendor stamp duty which Treasurer Michael Egan said should raise $A690 million.

But the state will also lose $A273 million by cancelling stamp duty for first home owners, on homes costing less than $A500,000.

Other exemptions to the new stamp duty are for a principal place of residence or farm, where the sale price doesn’t exceed the original purchase price by more than 12%, and for the first sale by builders or developers of new dwellings. That includes off-the-plan sales.

The NSW Government also changed the rules on land tax. Previously, none was payable on investment properties up to $A317,000. Now it will be payable on all properties at rates ranging from 0.4-1.4%.

Website: NSW Government mini-budget details

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