The Reserve Bank of Australia has played it safe at its July Board meeting, leaving the official cash rate on hold at 2.5 per cent for the 11th consecutive month.
Sluggish consumer sentiment teamed with a recent drop in property values would no doubt have encouraged the Reserve Bank to leave the cash rate untouched.
According to the latest Westpac Melbourne Institute of Consumer Sentiment, confidence climbed just 0.2 per cent in June. Overall, consumer sentiment remains 6.6 per cent below the pre-Budget level recorded in April and 15.6 per cent below the post-election high recorded in November last year.
The absence of a significant bounce back in June would have been disappointing for the Reserve Bank as, generally speaking, the initial response to a Budget is an overreaction that reverses in the following months.
However, that doesn't seem to be the case with this latest Budget. The Government's Budget seems to have rattled consumer sentiment – a fact the Reserve Bank understands all too well.
On top of sluggish consumer sentiment, the fact that property values were fairly stagnate in June, with values across Australia's combined capital cities climbing 1.4 per cent after a 1.9 per cent drop in May would have encouraged the Reserve Bank to take a “wait and see” approach to rates.
Over the last quarter, dwelling values have remained fairly stagnate. Sydney currently leads the pack, with values climbing just 1 per cent in the capital city over the last three months.
At the other end of the scale, Melbourne has endured the biggest fall in values, with the city recording a 2.4 per cent drop over the quarter.”
Moving forward, property values could remain fairly stagnate for some time and, as long as this is the case and consumer sentiment remains sluggish, we can expect to see the Reserve Bank leave the cash rate on hold.
The fact of the matter is, there is already a significant degree of monetary stimulus in place, as such, the Reserve Bank is unlikely to drop the cash rate further.
That said, it is fair to assume that rates will rise eventually – it is just a matter of when.
With that in mind, now could be a good time for potential buyers to seriously consider jumping onto the property ladder – provided they have the capacity to do so.