A stronger economic recovery is possible, says Reserve Bank

The Reserve Bank of Australia (RBA) has struck a cautiously optimistic tone as it maintains the cash rate at the historic low of 0.25%.

This rate will be held, says the RBA, until progress is made towards full employment and it is confident that inflation will be sustainably within the 2-3% target range.

"Financial markets are working more effectively than they were a month ago, although conditions have not completely normalised," says Governor Philip Lowe.

Still, the bank is now entertaining the possibility of a stronger than expected economic recovery.

"A stronger economic recovery is possible if there is further substantial progress in containing the coronavirus in the near term and there is a faster return to normal economic activity."

Governor Philip Lowe reiterated the bank's efforts to reduce the cost of borrowing and offer liquidity facilities to banks.

"The deferral of loan and other payments is helping people manage their cash flows. The Australian banking system, with its strong buffers of capital and liquidity, is also helping the economy traverse this difficult period."

Meanwhile, Corelogic data from April show that housing values are holding steady in positive territory, despite a fall in market activity and a severe weakening in consumer sentiment.

Dwelling values for the month grew 0.3% despite negative falls in Melbourne and Hobart of -0.3% and -0.1% respectively.

"Although housing values were generally slightly positive over the month, the trend has clearly weakened since mid-to-late March, when social distancing policies were implemented and consumer sentiment started to plummet," says Corelogic head of research Tim Lawless.

Lawless says Australia's largest cities have a higher level of downside risk.

"Sydney and Melbourne arguably show a higher risk profile relative to other markets due to their large exposure to overseas migration as a source of housing demand, along with greater exposure to the downturn in foreign students, stretched housing affordability and already low rental yields that are likely to reduce further on the back of rising vacancy rates and lower rents."

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