RBA holds at 1.75 percent at June 2016 meeting

RBA holds at 1.75 percent at June 2016 meeting
RBA holds at 1.75 percent at June 2016 meeting

The RBA cash rate decision came out at 2.30 today with the decision to hold rates at 1.75 percent.

Monetary policy decisions are expressed in terms of a target for the cash rate, which is the overnight money market interest rate.

CoreLogic head of research Tim Lawless said the RBA has left the cash rate on hold today at the historically low setting of 1.75 percent and mortgage rates are likely to remain at their lowest levels since 1968.

He said in making their decision the RBA is facing conflicting economic trends.  

"On one hand we have an economy that is growing at just over 3 percent per annum, low unemployment and a re-accelerating housing market," he said.

"On the other hand the RBA is confronted with a core inflation reading which is at a record low as well as the lowest wages growth on record.  While the decision to hold rates was widely expected, the prospect of a further rate cut later this year is still well and truly on the cards.  

"If the June quarter inflation data, which is out a week before the RBA’s August board meeting, provides another weak reading, the chances of a rate cut in August are high.  The turnaround in the pace of capital gains across the housing sector is likely to be a concern for the RBA. 

"CoreLogic reported a 1.6 percent rise in capital city home values last week, following a 1.7 percent rise in April. The stronger housing market conditions have been enough to reinflate the trend rate of growth which is something the RBA and the banking sector regulator are likely to be keeping a close eye on.  

"Strong housing market conditions probably wouldn’t be enough to block a further rate cut, however, if the renewed growth trend continues, there is the potential for a further regulatory response that could cool housing market demand while at the same time allowing monetary policy to stimulate the broader economy."

Laing+Simmons managing director Leanne Pilkington said interest rates need not drop any further.

"Most lenders passed on last month’s cut either in full or part. Strictly from a finance perspective, there’s never been a better time to obtain an affordable loan,” she said.

“But a low interest rate is just one piece of the affordability puzzle, and there are many other influences conspiring to keep a property purchase out of the realm of many young people.

“For first home buyers, the situation leading into the election remains unchanged, despite last month’s rate cut. Accumulating a deposit against the background of a less certain economic environment, a changing employment picture and the high cost of renting is more difficult than ever." 

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