RBA holds rates as expected, but federal budget the focus of the month

RBA holds rates as expected, but federal budget the focus of the month
Jennifer DukeDecember 7, 2020

Yesterday’s decision at the monthly Reserve Bank of Australia meeting to keep interest rates on hold was unsurprising. However, the response to this period of stability, with a focus largely on next week's budget announcements, has been fascinating.

Housing Industry Association economist, Geordan Murray, said that recent commentary from RBA officials had everyone expecting the no-change result of yesterday, however said that the statement suggests the board’s confidence has been buoyed by positive developments in the household sector. This was, as you can read in Glenn Stevens’ speech yesterday, largely related to strong leading indicators for residential construction.

Murray noted that it’s the strength of the labour market that is now at the forefront of the Board’s concerns “although the statement belies a confidence that the accommodative monetary policy settings will enable conditions to improve within the foreseeable future”.

Similarly, the strength of the Australian currency struck Murray as something the Board is watching closely, however there is “no sense of urgency” as it sits a level lower than a year ago.

Mortgage Choice spokesperson Jessica Darnbrough explained that inflation is sitting comfortably within the target range, with positive employment data and property prices now climbing modestly.

However, despite this, it appears some are more concerned about increases in the near future than others – while most are now turning their attention to the budget.

“There is no doubt rates will climb eventually, but right now they are sitting at historically low levels. So for those potential borrowers who have the means to get onto the property ladder, now may be a good time to do so,” she said.

CEO of RateCity, Alex Parsons, said that consumers should not be complacent in today’s low-rate environment.

“We're at record low interest rates so over time they are only likely to go up so make sure you can afford to withstand some increases in interest rates,” Parsons explained.

“The second thing is we've heard a lot from the government in the recent few weeks around the prudent budget and so that is going to hit people in the back pocket I would suspect,” he said.

REINSW president Malcolm Gunning also said that it’s the budget that has the attention.

“We are not surprised by the RBA's choice to leave interest rates in a holding pattern. All eyes are now on the federal budget, which could have wide implications for Australians and the future direction of interest rates,” he said.

“While the housing market remains firm, we watch with interest the delivery of the budget, the high Australian dollar and rising unemployment levels which could negatively influence consumer confidence,” Gunning explained.

While Laing+Simmons’ general manager Leanne Pilkington also said that we should now be looking more closely at the changes to be made next week, with the finer details of foreshadowed changes to taxation to be identified.

“While many young people struggle to build a suitable deposit, many existing mortgage holders are struggling to meet repayments, and pensioners have also been put on alert,” warned Pilkington.

“There is general acknowledgment that next week's budget must be tough, however it is important that Government supports those already in a precarious financial position,” she said.

Jennifer Duke

Jennifer Duke was a property writer at Property Observer

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