HOME OWNERS can still expect lower borrowing costs this year, economists said, even after the Reserve Bank left interest rates unchanged yesterday.
The Reserve’s governor, Glenn Stevens, struck a relatively upbeat tone in a statement explaining the decision to leave rates at 3 per cent, citing momentum in the Chinese economy and enthusiasm among first-home buyers. He said confidence in the financial system “remains fragile,” but markets were “on a path of gradual improvement”.
“While the near-term outlook remains weak, there are further signs of stabilisation in several countries,” Mr Stevens said. “The Chinese economy in particular has picked up speed in recent months and many commodity prices have firmed a little.”
But economists said rising unemployment and a deeper slowdown in the construction sector would pressure the Reserve into further cuts later in the year. An ABN Amro economist, Felicity Emmett, said it was significant that Mr Stevens’s statement acknowledged the next movement in rates was likely to be down. Typically, the Reserve gives no indication of where it will move interest rates.
Financial markets expect rates to fall another 0.5 percentage points by the end of the year.
The Reserve’s decision came as figures showed the construction sector continues to benefit from lower rates and increased payments to first-home buyers.
The number of houses and apartments approved for construction increased 3.5 per cent in March, the second monthly rise in a row, a Bureau of Statistics report showed. But the report also highlighted plenty of weakness in the home-building industry, and particularly in NSW.
Building approvals in the state dropped 7.2 per cent for the month, and are down almost 40 per cent for the past year. The Master Builders Association repeated calls for the Government to preserve the boosted payments for new houses purchased by first-home buyers, even if it cut the payments for existing houses.
In other economic news, car sales dropped more than 20 per cent in the first four months of 2009 compared to 2008. And the services sector has been contracting for 13 months in a row, according to a survey compiled by the Australian Industry Group and Commonwealth Bank.
Retail sales to be released today, and an unemployment report due tomorrow, will shine more light on the extent of the economic slump.
Source: The Sydney Morning Herald
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