RBA keeps rates on hold, but for how long?
Today’s Reserve Bank meeting, on Melbourne Cup day, revealed no surprises as the Bank opted to keep rates at a record low 2.5%.
With rates on hold, the question on everyone’s lips now is ‘for how long?’
RP Data’s research director Tim Lawless said that the Reserve Bank is more concerned with the level of investment in housing, rather than the pace of capital gains.
“In fact, the rolling annual change in capital city dwelling values has been moderating since April this year, suggesting that some heat is coming out of the market,” he said.
“Rather than pushing interest rates higher, which would have a detrimental effect on many aspects of the economy, it is looking more likely that APRA and the RBA will aim to cool investor demand by tweaking the risk appetite for bank lending to investors.”
He’s expecting that interest rates will track low until “well into 2015” and that dwelling values will continue to increase.
However, he did not that each city is showing different trends. Notably, Perth and Canberra are “already well through the peak of their cycles,” according to Lawless.
ME Bank's general manager markets John Caelli was also expecting rates to remain on hold.
“With inflation still well behaved and the dollar still higher than the RBA would like, the Bank can afford to wait until there is more clarity on global movements and developments in China,” he said.
“The next cash rate change will likely be upwards and occur in the second quarter of 2015.”
LJ Hooker chief executive offer, Grant Herrod, however thought that the stable rates today will cause encouraged sellers to list their properties before the inevitable Christmas slowdown.
“Spring brings with it a seasonal lift in listings, but that lift was a bit delayed this year,” Harrod said.
He said people wanted to buy their new property before listing their old one because of competition.
“The increase in stock levels we’ve seen over the past month combined with the continued historic low cash-rate should motivate those who have been sitting back waiting to take action over the next two to three weeks,” Harrod said.
Finder.com.au’s money expert, Michelle Hutchison, said that borrowers with a variable rate home loan are now celebrating the cash rate pause as they won’t be paying more before Christmas. If a change is made next month, which is unexpected, it won’t filter through until January.
"All 33 experts in Australia’s biggest Reserve Bank Survey by Finder.com.au bet the cash rate would hold today, with an average of all forecasts suggesting a rate rise in August 2015,” Hutchison said.
“The odds were stacked against mortgage holders today, with cash rate changes announced on six of the past 10 Melbourne Cup day Reserve Bank meetings.”
She said that interest rates look set to rise “soon” but that fixed home loans at good rates are available.
“For instance, we have seen 58 fixed home loans from six lenders fall in the past month alone, by as much as 0.61%. The average three-year fixed rate – which is the most popular fixed term – has dropped slightly from 5.04% at the start of October to 5.00% now. One-year fixed rates have also fallen from 4.85% to 4.81% in the same period,” she said.
Photo courtesy of Newtown grafitti/Creative Commons.