RBA keeps interest rates on hold for July

The Reserve Bank of Australia (RBA) has again chosen to keep the overnight cash rate at its record low level of 2.5%. The cash rate has not moved since August 2013.

The decision was widely anticipated by property industry commentators, with 18 surveyed industry experts recently predicting the cash rate would stay on hold.

RP Data’s research director Tim Lawless says that the cash rate is likely to stay on hold for the rest of the year.

“The RBA interest rate decision came at a time when value growth across the housing market continues to trend higher, albeit at a lower rate than in the recent past and the Australian dollar has remained stubbornly high around the ninety four cent mark,” said Lawless.     

“RP Data recently reported that dwelling values were down 0.2% over the June quarter, dragged down by a very weak May result and a partial recovery of values in June.  Policy makers, including the RBA, are likely to be reassured by the slowdown in housing market conditions, where the rate of growth earlier in the year was increasingly viewed as unsustainable.

“It is looking increasingly like the official cash rate will remain at its low setting, at least for the remainder of this year, which should continue to support housing demand.  Capital gains over the past financial year were recorded at 10.1% across the combined capital cities, however we are expecting growth rates to wind down over the coming financial year as natural affordability constraints and low rental yields in the largest capital cities work to slow the rate of capital gains.

LJ Hooker chief executive Grant Harrod said that a future increase is expected.

“The continued stability of rates will give buyers extra confidence, even with speculation an increase will eventually come,’’ said Harrod.

“We have seen property price growth soften as the market heads into winter but, even still, demand is strong as seen in the volume of sales and auction clearance rates around Australia’s various markets.’’

LJ Hooker national research manager Mathew Tiller said unemployment levels remain at a stable 5.8%, in spite of concerns over the retail and mining sectors, while inflation is within the RBA’s target band.

However, he said that international markets could affect local interest rates offered by banks.

“In the US and EU, rates are set at close to zero and are not expected to move till mid-2015, while the risk of deflation in Europe has seen the European Central Bank introduce negative interest rates for bank deposits,” said Tiller.

“Major lenders here may look to tap into this cheap source of debt.”

Photo courtesy of Newtown grafitti/Creative Commons.

This piece originally appeared at Property Observer.