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Rates on hold as economy shows signs of strength

For the fourth consecutive month, the Reserve Bank of Australia (RBA) has decided to leave the official cash rate on hold at the historically low setting of 2%.


For the fourth consecutive month, the Reserve Bank of Australia (RBA) has decided to leave the official cash rate on hold at the historically low setting of 2%.

Why?

There are a couple of reasons behind's the Board's September rate decision – namely improvements in dwelling approval numbers and consumer sentiment as well as continued growth in property values.

Over the last month, the Australian economy has shown real signs of strength.

Data from the Australian Bureau of Statistics found the number of dwelling units approved over the month of July soared 4.2% to 19,298.

This significant growth is a great win for the housing and labour markets as well as the broader economy.

And it wasn't just building approvals that recorded significant improvement in recent weeks. Data from the Westpac Melbourne Institute of Consumer Sentiment found confidence climbed 7.8% in August to 99.5.

While there were no significant milestones or events to warrant the bounce back in confidence, it is likely that ongoing positive news around house prices may have buoyed confidence.

Over the last quarter, property values across the combined capital cities have continued to climb, soaring 5.5%.

In the last month alone (August), values across the combined capital cities climbed 0.3%, with Sydney the standout performer.

Given that property values continue to climb at a fairly significant pace, it would seem the Reserve Bank is understandably hesitant to cut the cash rate again in the short term.

The reality is, if rates are cut again it could cause a spike in home buyer demand, which could force property prices higher still.  

But while the Reserve Bank left the cash rate on hold at 2% for the fourth consecutive month, future rate cuts cannot be ruled out. 

Posted in: Interest rates

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