RBA leaves cash rate on hold at 2.75%

The cash rate remains unchanged at 2.75% following today’s RBA monetary policy board meeting.

This was in line with the expectations of most economists with 24 out of 25 economists polled by Bloomberg last week tipping no change in June.

AMP Capital Investors chief economist Shane Oliver was the only economist to forecast a rate cut out of the 25 polled, though he said it would be “another close call”.

Separately to the Bloomberg poll, property bear Steve Keen said the RBA should have cut the cash rate today.

Commenting on today’s decision, RP Data research director Tim Lawless says, the recent fall in housing values over both April and May isn’t likely to have played a large role in the RBA’s decision.

Dwelling values fell 1.2% in May and 0.5% in April to be up 1.1% over the first five months of the year, according to RP Data-Rismark.

“In fact, the RBA was probably heartened that the strong value growth recorded over the first quarter of the year has now slowed to a more sustainable pace,” says Lawless.

“Dwelling values remain 1.1% higher since the start of 2013 and are 2.9% higher over the year.

“Looking specifically at the housing market, most other indicators continue to paint a reasonably strong picture of the market.

“Auction clearance rates remain around the 70% (higher in Sydney), the number of advertised properties has fallen markedly since the start of the year, homes are selling in a fewer number of days and vendors are discounting their prices by less.  Importantly there has also been a consistent rise in buyer activity suggesting that buyer demand is continuing to improve thanks to the lower interest rate environment and the fact that the housing market is back in recovery mode,” he says.

Alex Parsons, CEO of financial comparison website RateCity.com.au says last month’s rate cut by the Reserve Bank spurred most lenders to follow, by passing on the full 0.25 percentage points.

“We haven’t seen this many lenders follow the cash rate cut in full over the previous six rate cuts. For example, the last three rate cuts in December, October and June 2012, the majority of lenders passed on 0.20 of the Reserve Bank’s 0.25 percentage points.

“In May 2012, when the Reserve Bank dropped the cash rate by 0.50 percentage points, most lenders cut their variable rates by about 0.30 percentage points. This shows that pressure for funding has eased compared to last year and lenders can afford to pass on the full rate cuts to their variable home loan customers,” he says.

This article first appeared on Property Observer.