Reserve Bank set to rest the knife as conditions and confidence settle

The Reserve Bank board is set to take a breather on Tuesday after slicing almost $2000 from the annual cost of servicing a typical mortgage over the past year.

At their first meeting this year, board members will be told they can afford to wait longer before assessing the impact of their two most recent cuts, in October and December.

Those cuts sliced a further $75 from the monthly cost of repaying a $300,000 mortgage, and would have sliced off $94 had the banks passed them on fully. Over the past year the Reserve Bank cuts that have been passed on took $161 off the monthly cost of servicing a typical mortgage.

The bank's cash rate is now just 3 per cent - the lowest on record. The bank believes any proposals for further cuts require a stronger justification as they would take the cash rate further away from normal.

Overseas developments in the two months since the board's last meeting provide no such justification. The United States has survived negotiations over its so-called ''fiscal cliff'' and is on track to successfully negotiate over its debt ceiling.

British economic growth has turned negative, but no more than expected. China's outlook is improving, and Japan has a new government keen to restart economic growth.

If sustained, the latest boost in the iron ore price will help rather than harm Australia's economy. But the Reserve Bank expects it to fade and sees no signs of mining companies bringing forward or restarting stalled projects.

At home, it sees tentative signs consumer confidence is lifting. House prices are climbing slowly. While the unemployment rate is climbing, the rise is modest. The high dollar is weighing on business confidence.

The latest inflation figures give the bank room to act. Notwithstanding the introduction of the carbon tax, Australia's official rate of inflation has slipped to an unusually low 2.2 per cent, well below the centre of the bank's 2 to 3 per cent target band.

But in the absence of new bad news from overseas or a deterioration in the Australian economy, it can't see a reason to act.

The bank stands ready to cut rates again as soon as conditions worsen or developments such as a further increase in the Australian dollar threaten Australian businesses, but it is prepared to wait until it sees the evidence.

The Coalition on Sunday held out the prospect of prolonged economic uncertainty, saying it would not release costed election policies until August, which would be 10 days into the official campaign for the September 14 election.

The declaration, by shadow assistant treasurer Mathias Cormann, appeared to constrain a promise by Opposition Leader Tony Abbott to ''release our costings after the government releases theirs, after the Budget and before polling day''.

The story Reserve Bank set to rest the knife as conditions and confidence settle first appeared on The Sydney Morning Herald.

Smartphone
Tablet - Narrow
Tablet - Wide
Desktop