On hold at the lowest rate on record: What the RBA’s thinking

On hold at the lowest rate on record: What the RBA’s thinking
On hold at the lowest rate on record: What the RBA’s thinking

Yesterday’s announcement from the Reserve Bank (RBA) that the overnight cash rate will remain at 2.5% for October came amid speculation that interest rates are likely to increase in mid-2015.

Housing Institute of Australia (HIA) senior economist Shane Garrett said the decision was widely expected, and stable interest rates will be seen for a while.

“This will provide a welcome degree of certainty to those engaged in the housing industry, as well as other areas of the economy,” said Garrett.
 
“The era of very low interest rates has provided a welcome boost to new home building, and is doing something to alleviate the shortage of dwelling accommodation suffered by Australia,” he said.

With all the factors the RBA has been considering, ANZ’s summary included the following important points of note:

  • The Bank remains concerned about the outlook for China, however noted it had been slowing in recent months.

  • Acknowledgement of the recent volatility in the labour market data.

  • They remain relaxed about inflation due to subdued wages growth, which will help to offset upside influence from the weaker currency.

  • The rhetoric on domestic housing has been lifted slightly, noting a “further pick-up in recent months in lending to investors in housing assets”.

  • A further decline in the Australian Dollar will be watched for. Although it remains high by historical standards it is offering “less assistance than would normally be expected in achieving balanced growth in the economy”.

  • The comment about a period of stability was repeated verbatim from last month.

Loan Market chairman Sam White said that in recent weeks there has been talk of macro prudential measures to be introduced to slow down the real estate market without raising rates.

"Broadly we support this way forward. However, we'd urge the RBA not to penalise first home buyers from entering the market, as has happened recently in New Zealand," White said.

Jennifer Duke

Jennifer Duke

Jennifer Duke was a property writer at Property Observer

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Rba Rate Decision

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