RBA holds cash rate at December board meeting of 2016

RBA holds cash rate at December board meeting of 2016
RBA holds cash rate at December board meeting of 2016

The RBA cash rate decision came out at 2.30 today with the decision to hold rates at 1.5 percent.

The RBA noted conditions in the housing market have strengthened overall, although they vary considerably around the country.

"In some markets, prices are rising briskly, while in others they are declining.

It noted housing credit has picked up a little, although turnover of established dwellings is lower than it was a year ago.

"Supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments.

"Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities.

"Growth in rents is the slowest for some decades."

Tim Lawless, CoreLogic head of research said despite inflation tracking well below the target range of 2-3 percent, the RBA decided to keep the cash rate on hold at 1.5 percent.  

"On one hand the RBA was likely considering the sluggish inflation numbers, the likelihood of a low or even negative economic growth reading when GDP data is released tomorrow, record low wage growth of 1.9 percent in the year to September and the loss of approximately 50,000 full time jobs in the year to October," he said.

"In balance, there are plenty of reasons why the RBA would keep rates on hold such as the rebound in housing market strength and housing investment activity, a surge in commodity prices, and potentially a lower Australian dollar as the US looks to increase interest rates.  

"The reacceleration in housing values in some cities was likely a topic of discussion at the RBA, particularly considering the rebound in dwelling values that has been evident across some cities coincided with the two rate cuts earlier this year. 

"The May and August rate cuts were also accompanied by an aggressive rise in investment activity.

"A decision to cut the cash rate to new record lows could add further incentive to investors and owner occupiers which could push housing values even higher. The next RBA meeting isn’t until February 7th. 

"By this time the RBA will have had time to consider the performance of the housing market over the final quarter of 2016, as well as GDP figures for September and inflation numbers for the  December quarter.  Additionally there will be further clarity on the US economy where unemployment has reached a nine year low and interest rates are about to start ratcheting higher. 

"At 1.5 percent, the cash rate is still highly expansionary and, together with other factors, is likely to keep housing demand strong."



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