Australia’s central bank holds rates steady, Ukraine fresh uncertainty

  • RBA keeps rates at 0.1%, reiterates patient’s position
  • Q4 GDP is expected to post growth of 3% or more
  • Cooling housing boom could limit potential rate hikes

SYDNEY, March 1 (Reuters) – Australia’s central bank kept interest rates at a historic low on Tuesday and cited the war in Ukraine as a major new source of uncertainty as it urged patience in the policy tightening.

Concluding its March policy meeting, the Reserve Bank of Australia (RBA) kept rates at 0.1% and reiterated that it was prepared to wait for a much-desired recovery in wage growth before moving to tighten its Politics.

“The Board stands ready to be patient as it monitors developments in the various factors affecting inflation in Australia,” RBA Governor Philip Lowe said in a brief statement. “The war in Ukraine is a major new source of uncertainty.”

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Lowe expressed optimism about the national economy, noting strength in consumer spending, business investment and the labor market.

Fourth-quarter GDP figures due on Wednesday are expected to show a rapid rebound in growth of at least 3% as household demand rebounded from the coronavirus shutdowns. Read more

This recovery shows all signs of a continuation of retail sales growth in January and banks reporting healthy spending on their cards through February.

Unemployment has fallen to 4.2%, its lowest level in 13 years, and is expected to fall below 4% for the first time since the 1970s.

Lowe recently said it was plausible that a first rate hike could come later this year if the economy continues to recover, while markets are pricing in a move as early as July.

The Russian invasion of Ukraine added geopolitical uncertainty to this mix and combined with massive flooding in the states of New South Wales and Queensland to darken the public mood.

An ANZ consumer survey released on Tuesday showed a sharp drop in sentiment last week as inflation expectations hit a seven-year high of 5.3% as petrol prices hit record highs .

Heat also appears to be coming out of the housing market with prices falling in Sydney in February for the first time in 17 months, although the move into the country continues at a brisk pace.

Figures from real estate consultant CoreLogic showed national house prices rose 0.6% in February, nearly half of the 1.1% jump seen in January. Values ​​in Sydney fell 0.1% and Melbourne was flat, hurt by a rush in supply and higher mortgage rates. Read more

“Price gains in 2021 nationwide have been extraordinary and a downward correction is a natural response,” said Gareth Aird, head of Australian economics at the CBA. “This cycle seems to have run its course in Sydney and Melbourne.”

He also expects the RBA to start raising rates in June if first-quarter inflation is as high as expected, which will put additional pressure on the market.

“We estimate that there are over a million home borrowers who have never experienced a mortgage rate increase,” Aird added. “This means that we expect a gradual and shallow rate hike path.”

As a result, he now expects prices in the capital to remain flat this year, compared to a previous forecast of a 7% gain, and an 8% drop in 2023.

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Reporting by Wayne Cole; Editing by Sam Holmes

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