Reserve Bank needs to rule out further rate rises

01 June 2011

The Reserve Bank should now rule out any increase in interest rates in the near future, following todays 1.2 per cent seasonally adjusted drop in the March quarter gross domestic product, according to the Urban Taskforce.

At its May meeting the Reserve Bank board minutes claimed that the current mildly restrictive stance of monetary policy was appropriate. 

 

It also said that if economic conditions continued to evolve as expected, higher interest rates were likely to be required at some point.

 

The Urban Taskforces chief executive, Aaron Gadiel, said the Reserve Bank now needs to urgently change tack.

 

Todays figures shows that public sector economic forecasters had underestimated the impact of natural disasters on the national economy, Mr Gadiel said.

 

The Reserve banks board is due to meet next week.

 

It wont be enough to merely keep interest rates on hold.

 

The bank should shift the tone of its language, to make it clear that interest rate increases simply arent on the agenda in the period ahead.

 

Mr Gadiel said that the prospect of interest increases had made it more difficult for property developers to proceed with new projects desperately required by the community.

 

Property developers have had to factor in bigger holding costs as they navigate complex approval processes and complete lengthy construction works, he said.

 

As a result, some new residential, retail, commercial and industrial development projects simply havent been able to get off the ground.

 

Mr Gadiel said that value of construction activity in the March quarter had increased by a seasonally adjusted 1.2 per cent, but the prospect of further interest rate increases would make it hard to sustain such increases in further quarters.

 

Economic conditions are clearly not evolving as expected, so a clear message that interest rates will not be rising further in the period ahead is important, Mr Gadiel said.

 

The Urban Taskforce is a property development industry group, representing Australias most prominent property developers and equity financiers.

 

Download PDF Document