Reserve Bank of Australia has reduced the cash rate to 2.75%

 

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 2.75 per cent, effective 8 May 2013.
 
The global economy is likely to record growth a little below trend this year, before picking up next year. Among the major regions, the United States continues on a path of moderate expansion and China's growth is running at a more sustainable, but still robust, pace. Japan has announced significant new policy initiatives aimed at strengthening demand and ending deflation. The euro area remains in recession. Commodity prices have moderated a little in recent months though they remain high by historical standards.

Financial conditions internationally continue to be very accommodative, with risk spreads reduced, funding conditions for most financial institutions improved and borrowing costs for well-rated corporates and sovereigns exceptionally low.

Growth in Australia was close to trend in 2012 overall, but was a bit below trend in the second half of the year, and this appears to have continued into 2013. Employment has continued to grow but more slowly than the labour force, so that the rate of unemployment has increased a little, though it remains relatively low.

With the peak in the level of resources sector investment likely to occur this year, there is scope for other areas of demand to grow more strongly over the next couple of years. There has been a strengthening in consumption and a modest firming in dwelling investment, and prospects are for some increase in business investment outside the resources sector over the next year. Exports of raw materials are increasing as increased capacity comes on stream. These developments, some of which have been assisted by the reductions in interest rates that began 18 months ago, will all be helpful in sustaining growth.

Recent data on prices confirm that inflation is consistent with the target and, if anything, a little lower than expected. The CPI rose by 2½ per cent over the past year, and measures of underlying inflation gave a broadly similar outcome. These results have been pushed up a little by the impact of the carbon price. Growth of labour costs has moderated slightly over recent quarters while productivity growth appears to be improving. This should help to lessen increases in prices for non-tradables. The Bank's forecast remains that inflation over the next one to two years will be consistent with the target.
Over recent meetings, the Board has noted that interest rates have already been reduced substantially, with borrowing rates approaching previous lows, and that the effects of this on the economy are continuing to emerge. Savers have been changing their portfolios towards assets with higher expected returns, asset values have risen and some interest-sensitive areas of spending have increased.
The exchange rate, on the other hand, has been little changed at a historically high level over the past 18 months, which is unusual given the decline in export prices and interest rates during that time. Moreover, the demand for credit remains, at this point, relatively subdued.

The Board has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand. At today's meeting the Board decided to use some of that scope. It judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target.

AUSTRALIAN PROPERTY UPDATE: Home prices surge in January in all major cities

AUSTRALIAN PROPERTY UPDATE: Home prices surge in January in all major cities

A widely watched home value index shows prices surged in most capital cities in the first month this year.

The RP Data - Rismark Home Value Index jumped 1.2 per cent across Australia's capital cities in January.

The strong monthly gain means Australian capital city home prices are now up rather than down over the past 12 months.

PERFORMANCE OF AUSTRALIAN CITIES:

Hobart had the biggest monthly gain of 4.5 per cent, pulling its prices to a 0.8 per cent rise over the past year.

Brisbane's prices were up 2 per cent, resulting in a 2.3 per cent gain since January 2012.

Sydney continued a steady positive run, with prices up 1.8 per cent in January, for a 3.4 per cent gain over the past year.

Perth also had a relatively solid run, with a 1.7 per cent rise last month for a 2.7 per cent gain since January 2012.

However, Melbourne has lagged again among the capital cities, with a 0.2 per cent rise in January leaving prices down 0.4 per cent over the past year.

Adelaide prices also failed to match the strong gains elsewhere, rising 0.4 per cent in January and 0.7 per cent over the past 12 months.

The two territory capitals had divergent performance: Canberra recorded a 1.5 per cent rise in January and 2.7 per cent over the past year; but Darwin prices fell 2.2 per cent last month, although were still 8.7 per cent higher over the past year.

House prices outside the state and territory capitals eased 1.1 per cent in December, and fell 0.7 per cent over 2012.

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Reference: abc.net.au

Which Australian city is performing best?

2012 was a mixed bag for property in Australia, with the market um-ing and ah-ing its way toward a cautious, gentle upturn, as the rest of the world covetedour homes.

The year kicked off with a fall in new home sales and an RBA decision to leave interest rates on hold at 4.25%.

The first interest rate cut of the year came in May, to 3.75%, in response to weaker than predicted economic conditions, with cuts following in May, June and October. 

Rismark International CEO, Ben Skilbeck cautioned that even with a December interest rate cut, Australians would have to wait until early 2013 to see a meaningful housing market response.

Home values in capital cities finished the year with a rise across the board, except for Melbourne.

Confidence in the market has steadily increased throughout 2012. TheWestpac-Melbourne Institute Consumer Sentiment Index shows an upward trend since April, reaching the highest level in 12 months in November 2012.

The Index looks closely at when consumers feel confident about buying a dwelling, and that number has improved significantly across 2012, with the national index is now showing the highest reading since September 2009.

RP Data analyst Tim Lawless says this it's a clear indicator we're getting more confident about the property market and are optimistic about the new year.

The Commonwealth Bank-Mortgage and Finance Association of Australia (MFAA) home finance index, released in late October, found 75.8% of people believed house prices would grow or remain stable for the remainder of 2012, further signalling a confidence boost to round out the year.

realestate.com.au's second annual Housing Affordability Index (HASI) told a similar story.

Though 84% of survey respondents admitted upward pressure on living expenses was a challenge to their property goals, 27% said they expected their financial position would improve in the near term, and most states and territories forecast slow but stready improvement ahead. Gen Y was feeling upbeat about the long term.

As we finish up 2012, RP Data Rismark has revealed its last batch of property headlines.

• Best performing capital city: Darwin +3.1%
• Weakest performing capital city: Hobart,  -4.5%
• Highest rental yields: Darwin houses with gross rental yield of 5.9% and Darwin Units at 6.2%
• Lowest rental yields: Melbourne houses with gross rental yields of 3.7% and Melbourne units at 4.4%
• Most expensive city: Sydney with a median dwelling price of $555,000
• Most affordable city: Hobart with a median dwelling price of $305,875

Reference: www.realestate.com.au