By Mark Mulligan
The Reserve Bank of Australia on Tuesday held the cash rate at 2.5 per cent for the 15th policy meeting in a row, reiterating that its current settings were right for fostering sustainable growth.
However, governor Glenn Stevens warned that growth in both Europe and Japan was weak, and that key commodity prices had "declined significantly" due to a mismatch between supply and demand.
RBA governor Glenn Stevens.Credit: Glenn Hunt
This year's declines in iron ore - Australia's biggest export - have shaken the local stock market and put a further dent in the fiscal accounts. Recent falls in oil have also upset investors around the world.
Mr Stevens' comments came as speculation continued to mount about the possibility of a rate cut next year.
Deutsche Bank was the latest to shift its forecast, citing a cooling housing market and concerns about unemployment.
The RBA again singled out the housing market for comment in its policy statement, repeating that the search for investor returns had led to a pick-up in buy-to-let investment in dwellings.
The Australian dollar immediately spiked more than a third of a US cent, but quickly retreated back to around US84.80¢.
Mr Stevens said despite recent declines against its US counterpart, the Aussie remained too strong to "achieve balanced growth in the economy".
The decision to hold rates steady was universally expected, and means 2014 was the first full calendar year in 10 years in which the RBA did nothing with rates.
Some economists are are now speculating that a cooling housing market will allow the central bank to ease policy next year if unemployment fails to drop and global uncertainty intensifies.
"With home value growth continuing to moderate in November and dwelling and work approvals recently slipping, there may be some concern that the housing market alone is not providing enough economic stimulus as the mining and resources investment activity subsides and commodity prices fall," CoreLogic RP Data senior research analyst Cameron Kusher said.
"Nevertheless, the RBA has again kept official interest rates on hold this month."
More to come...