RBA leaves rates on hold for one year

There were few surprises today, with the Reserve Bank of Australia once again leaving the official cash rate on hold at 1.5%.
RBA leaves rates on hold for one year

August 01, 2017

There were few surprises today, with the Reserve Bank of Australia once again leaving the official cash rate on hold at 1.5%.

Mortgage Choice chief executive officer John Flavell said the Board's decision was “largely unsurprising” given what is taking place both abroad and domestically.

“In the United States of America in particular, soft inflation has ultimately encouraged the US Federal Reserve Board to dampen expectations of another rate increase over the short term,” he said.

“In Australia, a lower than expected inflation result is also on the Reserve Bank of Australia's radar.

“According to the latest data from the Australian Bureau of Statistics, consumer prices rose just 0.2% throughout the June quarter, pushing the annual rate of inflation down to 1.9%. Not only is this slightly down on the previous reading of 0.5% for the March quarter and 2.1% for the year, but it is below the Reserve Bank's target band range of 2 – 3%.”

In addition to a lacklustre inflation result, Mr Flavell said the Reserve Bank's cash rate decision would have been based on the latest developments in the property and lending markets as well as the latest movement in the Australian dollar.

“This morning, the Australian dollar hit 80.0 cents, up from 79.80 cents on Monday,” he said.

“The Reserve Bank would be acutely aware of this, and would be looking to balance the strong Australian dollar with soft inflation and ongoing changes in the lending markets.

“Over the last couple of months, many of Australia's lenders have adjusted the pricing across their suite of home loan products. Many continue to lift the price of their interest only loans for both investors and owner occupiers. As such, the spread between principal and interest and interest only pricing is now approximately 80 basis points.

“We have also seen some change in the property markets, with areas like Sydney and Melbourne continuing to perform strongly.

“According to the latest data from CoreLogic, property values in Sydney and Melbourne rose by 1.4% and 3.1% respectively.”

Looking ahead, Mr Flavell said he wouldn't be surprised to see further growth in these capital cities, given that both states have recently introduced a raft of first home buyer incentives.

“I think the first home buyer incentives offered by New South Wales and Victoria may cause the shape of the market to shift. Over the coming months, I wouldn't be surprised to see more first home buyers and fewer investors playing in these markets.”

Given the latest developments both here and abroad, Mr Flavell said the Reserve Bank was right to leave the official cash rate on hold.
Looking ahead, Mr Flavell said he wouldn't be surprised to see the Reserve Bank leave the cash rate on hold for a little while yet.

“Regardless of what the Reserve Bank chooses to do with the official cash rate over the coming months, one thing is clear: interest rates will remain relatively low for the foreseeable future.

“As such, for anyone thinking of buying a property in the near future, now is a really good time to do so.

“In addition, now is a good time for those who are already in the market to review their options and make sure they are still in the right product for their needs.

“In a complicated market, it is always a good idea to take the time to talk to your bank or broker about your situation.”


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