RBA Keeps Cash Rate Unchanged at 2.75 pc

The Reserve Bank of Australia (RBA) has elected to hold the cash rate at 2.75 per cent, after meeting this week (July 2).

In an official statement, RBA governor Glenn Stevens said that the board judged current monetary policy to be "appropriate" given the state of the economy.

"At today's meeting the board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target."

While he noted that the pace of borrowing was still "relatively subdued", he indicated there were signs that demand for finance by Australian households is on the rise.

Real Estate Institute of Australia (REIA) president Peter Bushby says that market reaction has been positive since the last rate drop in May, and the REIA was not expecting further easing of monetary policy this week.

"The first quarter of 2013 had the seventh consecutive improvement in housing affordability," said Mr Bushby in a statement.

"Auction results are improving in strength, while increases in housing finance commitments and building activity are also positive."

Mr Bushby pointed out that according to a recent HIA report, the proportion of a home owner's income needed to cover loan repayments was down by 0.5 percentage points to 29.9 per cent.

He did note that while rate cuts generally were good at encouraging investor activity and non-first home purchases, there was still the challenge of helping first time buyers get into the market.

By contrast, the Housing Industry Association (HIA) was disappointed with the RBA's decision.

HIA senior economist Shane Garrett said that an opportunity to provide "badly needed support" to Australian households and businesses had been missed.

"Our economy needs a strong residential building sector to substitute for declining construction activity in the mining sector," said Mr Garrett.

He said that lower interest rates were needed to put the industry back on a path to sustainable growth, both by spurring building activity and by giving businesses more breathing space.

Since the next meeting of the RBA board won't occur until the first week of July, Mr Garrett believes that it is time for banks to seize the initiative.

"A unilateral rate cut from them over the next couple of days would add to the prospects for a decent and a sustainable residential construction recovery, which would directly or indirectly benefit tens of thousands of businesses, including the banks themselves."