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Australia Home Approvals Soar by Record in May

Approvals to build new homes in Australia surged by the most on record in May as a number of major apartment projects got the nod, providing an important boost to what had been one of the softest sectors of the economy.

AP

The huge 27.3 percent jump in approvals blew away forecasts of a mere 5.1 percent gain, with multi-unit approvals rising no less than 58.7 percent in the month.

That should be welcome news to the Reserve Bank of Australia (RBA) which holds its monthly policy meeting on Tuesday, and only reinforces expectations it will keep rates at 3.5 percent following two straight cuts.

"There were some large apartment towers approved in the month, which makes the data lumpy," noted Brian Redican, a senior economist at Macquarie.

"But this is still the first positive sign for the sector in months and suggests housing is at least troughing," he added. "We really can't see any urgent reason for the RBA to ease today."

The RBA cut rates by half a point in May and a further quarter in June, taking them to the lowest since December 2009. That brought the total easing since November last year to 125 basis points.

A Reuters poll of 19 analysts showed all expected rates to stay at 3.5 percent this week, while interbank futures put the chance of a cut at just one-in-ten.

Still, most analysts suspect policy could be eased again in August should official figures on inflation for the second quarter, due later this month, prove as benign as expected.

Indeed, odds are that annual underlying inflation slowed to 2 percent last quarter, the lowest reading since 1999 and the very bottom of the RBA's 2 to 3 percent target band.

With price pressures tame, there would be plenty of scope for stimulus as insurance against European uncertainty and the slowdown in China, Australia's single biggest export market.