Reserve Bank sits on cash rate at 2.25%

The Reserve Bank of Australia has held the official cash rate at 2.25% for April.

The decision comes after the Reserve Bank dropped the interest rate in February from 2.50% to 2.25%.

The majority of experts surveyed by comparison website Finder, including NAB’s Alan Oster, anticipated that the Reserve Bank would announce that rates would not change this month.

CoreLogic RP Data’s head of research Tim Lawless says a potential rate cut later in the year is likely to see home values continue to rise.

“The Reserve Bank has previously stated that they will be looking towards the regulatory framework to minimise risk in the housing market and it is clear that APRA are vigilant for any deterioration in lending standards across Australia’s lenders,” says Lawless.

“The buoyant housing market conditions should continue to support growth in housing construction which in turn provides a strong multiplier effect on the Australian economy, with increased housing activity flowing through more spending on items such as building materials, appliances, home furnishings and white goods. 

“More importantly, with population growth slowing and construction increasing the disconnect between housing demand and housing supply is also reducing which may also alleviate some of the increases in home values.”

Michelle Hutchison, of comparison website Finder, notes the benefit of the Reserve Bank’s decision to first home buyers.

“Today’s decision by the Reserve Bank to leave the cash rate unchanged at 2.25% is great news for first home buyers, as lower rates have led to higher consumer confidence and increasing property prices,” says Hutchison.

“The past year saw the median property price increase by 7.4 percent to $559,000 (CoreLogic RP Data). If first home buyers have to borrow over $38,000 more for an average property – from $520,484 to $559,000 – the higher property price would outweigh the last rate cut.”

“In fact, even if there was another cash rate cut, it won’t outweigh the extra cost in monthly repayments if you paid $38,000 more for a property,” she explains.

This article was first published on Property Observer.