RBA board members remained alert to the possibility that the low levels of interest rates could foster imbalances in the housing market, the latest minutes showed.
“The most recent data suggested that activity in the housing market had remained strong, but there had been little change to housing market conditions overall or in the growth of housing credit in early 2015,” the minutes read.
“Although prices continued to rise rapidly in Sydney and, to a lesser extent, Melbourne, trends elsewhere were more varied.
“Members noted that the Bank was working with other regulators to assess and contain risks arising from the housing market.”
The minutes noted overall members considered that the current setting of monetary policy was accommodative and providing support to the economy.
They also acknowledged that a lower exchange rate would help achieve more balanced growth in the economy.
“Further depreciation of the Australian dollar was likely given the recent declines in key commodity prices.”
In considering whether or not to reduce the cash rate further at this meeting, members discussed the various channels through which monetary policy was affecting the economy at present, including the asset price and exchange rate channels.
“In assessing the operation of the cash flow channel in particular, they noted that the responsiveness of borrowers and savers to changes in interest rates and asset prices was unusually uncertain in a world of very low interest rates and high household leverage.
“Members also saw advantages in receiving more data, including on inflation, to assess whether or not the economy was on the previously forecast path and allowing more time for the economy to respond to the reduction in the cash rate earlier in the year.”
This article first appeared on Property Observer.