Mere talk of an interest rate rise has put the squeeze on home-buyer confidence, so the Reserve Bank could be right to hold the cash rate.
Today’s decision to leave the official cash rate steady at 3 per cent is the right decision given uncertainty surrounding the magnitude of near-term recovery in the Australian economy, according to the Housing Industry Association (HIA).
“It will be important to keep interest rates stable in coming months to bolster activity and confidence amidst intensifying speculation regarding retail banks acting off their own bat to raise mortgage rates,” HIA chief economist Dr Harley Dale said.
Despite an acute shortage of new housing stock a sustained recovery in new home building is “some way off from being assured”, Dale said.
“It seems likely that the early stage of a lift in residential construction will be very mild relative to the gap in supply which needs to be plugged.
The HIA has already collected anecdotal evidence of a “concerning” loss of confidence towards housing amid the recent talk of rate rises.
The full effect of economic weakness on the balance sheets of financial institutions will not be seen for a while, Glenn Stevens, Reserve Bank governor of monetary policy, said.
“Overall, it now appears that investment may not be as weak over the year ahead as earlier expected. Higher dwelling activity and public demand will also start to provide more support to spending soon and, hence, growth is likely to firm going into 2010,” Stevens said.
