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No rate movements in 2014

With 2014 fast coming to a close, now is a great time to reflect on the year that was.

With 2014 fast coming to a close, now is a great time to reflect on the year that was.

2014 was a year marked by a “tough budget”, strong property value growth, solid auction clearance rates and sluggish consumer sentiment. It is also a year in which we saw no change in the official cash rate. For the last 16 months the Reserve Bank of Australia has left the cash rate on hold at 2.5 per cent.

This is the first time since 2004 that there haven't been any changes made to the official cash rate over the course of a calendar year.

Why have there been no changes?

Reflecting on recent statements made by the Reserve Bank, it would seem as though the Board is “comfortable” with the current setting of monetary policy given that the outlook for both the global economy and the domestic economy remains “good”.

In the November minutes of the Board meeting, the Reserve Bank of Australia indicated that the risks for the global economy were “roughly balanced”.

Meanwhile, on the domestic front, economic activity appears to continue to grow at a moderate pace. GDP growth is expected to be below trend over 2014/15, before gradually picking up to an above-trend pace towards the end of 2016.

Furthermore, the current historically low rate environment seems to be supporting activity in the housing market, with research conducted by RP Data showing that prices have risen by 8.5 per cent across the combined capital cities over the 12 months to December.

While this is fairly impressive growth, the latest data suggests growth is starting to moderate, which will no doubt further please the Reserve Bank of Australia and encourage them to leave the cash rate on hold.

RP Data's November Hedonic Home Value Index results shows dwelling values actually fell by 0.3 per cent in November across the combined capital cities. Moreover, over the three months to November, capital city dwelling values have only grown by 0.8 per cent.

Earlier this year the Reserve Bank made it clear they were concerned that the property market was too hot and certain measures may need to be implemented in a bid to cool the market.

But, given this latest data, it would seem there is no urgent need for the Reserve Bank to introduce cooling measures.

Furthermore, this moderation in property values further suggests that the current accommodative stance of monetary policy is still appropriate to foster sustainable growth in demand and inflation outcomes consistent with the target over the period ahead.

With that said, it now seems the most prudent course of action for the Reserve Bank to take is likely to be a period of interest rate stability.

Moving forward, with rates potentially set to stay on hold over the short to medium term, now may be a great time for potential property buyers to jump onto the property ladder.

Alternatively, now may also be a good time for those with a mortgage to review their current home loan situation and see whether or not there is a better deal out there for their needs.

Australia's lenders are competing aggressively for business at the moment, so for those who haven't refinanced or reviewed their mortgage in recent years, now may be a great time to do so. 

Posted in: Archive

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