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RBA leaves cash rate on hold…again

For the ninth consecutive month, the Reserve Bank of Australia has left the cash rate on hold.


For the ninth consecutive month, the Reserve Bank of Australia has left the cash rate on hold.

Today's decision means the official cash rate continues to sit at the historical low of 1.5%.

According to the majority of economists, the Board's decision was ‘unsurprising', as the latest economic data suggests the Australian economy is tracking along quite well at the moment.

Business conditions have improved, unemployment remains relatively low, property prices continue to rise across most markets, and inflation has edged slightly higher over the first quarter of 2017 – all of which is good news for the Australian economy.

The latest Monthly Business Survey from National Australia Bank found business conditions rose 5 points to its highest level since the Global Financial Crisis. Meanwhile, data from the Australian Bureau of Statistics shows the unemployment rate is stable at 5.9%.

Furthermore, the latest research from CoreLogic found property values across the combined capital cities rose 0.1% over the month of April. Melbourne, Brisbane and Adelaide were the standout performers, with the capital cities recording dwelling growth of 0.5%, 0.6% and 0.8% respectively.

Finally, the latest Consumer Price Index reading found headline inflation rose by 0.5% over the first quarter for an annualised rate of 2.1% - which sits perfectly within the Reserve Bank's target band range of 2% - 3%.

Given all of this positive economic data, it is little wonder why the Reserve Bank choose to leave the cash rate on hold for another month.

Of course, just because the cash rate has been left on hold, that doesn't mean to say we won't see further home loan changes over the coming weeks.

Quite the opposite.

Over the past few weeks, many of Australia's lenders have adjusted their home loan pricing and policy.

Why?

There are two main reasons for the changes.

Firstly, there is a lot of volatility in the global markets at the moment, which is putting pressure on funding costs. This pressure has ultimately forced many of Australia's lenders to lift the interest rates on their suite of home loan products.

Secondly, the Australian Prudential Regulation Authority has made it clear in recent weeks that Australia's lenders need to reduce their level of investment activity.

At the end of March, the prudential regulator told Australia's banks that they needed to limit their level of interest-only lending to 30% of all new residential home loans.

Generally speaking, interest only loans are favoured by investors. As such, we have seen a number of lenders lift the pricing on their suite of investment loans and/or make changes to their investment lending policies in a bid to stifle their level of investment lending growth.

Of course, while some lenders have been making some significant pricing and policy changes in a bid to reduce their level of investor lending, other lenders have opened their doors to this type of borrower.

If you are thinking about buying an investment property, now is the perfect time to speak to your local mortgage broker. They are across the latest changes and will be able to find you a lender and product that is suitable.

Alternatively, if you have an interest only product and want to find out how the latest spate of rate changes may impact you, speak to your local mortgage broker today.

Whether you are buying, refinancing, upgrading or renovating, your broker can help.

Posted in: Interest rates

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